Labour trouble ails Apollo-Cooper Tires deal

Investors feel breakup of deal will be good for Apollo shareholders as it is unlikely to benefit the Indian company

The $2.5 billion acquisition of Cooper Tire by Apollo Tyres is facing hurdles from labour unions in both US and China, which may spoil the Indian company’s takeover attempt.

But investors say any break up will be good news for Apollo shareholders who do not see any benefit of the acquisition to the Indian unit -- especially in the backdrop of a falling rupee.  

Bankers say if the deal falls, Apollo will end up paying $112 million to Cooper as breakup fees.

Apollo Tyres will be funding the deal through $450 million taken on its Mauritius subsidiary’s balance sheet and another $1.8 billion loan taken on Cooper Tire’s books.

Last week, the US arbitrator said Cooper can not sell two of its factories in US to Apollo Tyres until a collective bargaining agreement is reached between Apollo and members of the plants' union.

United Steelworkers had argued that terms of the agreement will be violated if Cooper closes the deal without Apollo entering into a fresh wage agreement with the workers at Findlay, Ohio, and Texarkana, Arkansas.

When contacted, a Apollo Tyres spokesperson said that the deal is on track and the US arbitration award will not impact the transaction. Cooper Tire officials said they are assessing their options and are “committed to the merger with Apollo”.  

The trouble for the deal began soon after it was announced in June. On August 1, United Steelworkers and two of its local unions alleged that Cooper has violated the successorship provisions of the collective bargaining agreement by entering into the merger agreement with Apollo despite the latter not entering into a deal with United Steelworkers and local unions.  

The arbitrator has agreed with the Unions. Both Cooper and Apollo officials are now negotiating with the American unions.

Similarly, in China, the production employees at its joint venture, Cooper Chengshan Tire, in Rongcheng went on strike on June 21 demanding termination of the merger.  

On August 17, employees returned to work on a limited basis to manufacture only non-Cooper branded products, but have taken other disruptive actions, including denying access to certain representatives of the company and withholding certain business and financial information.

But back home in India, Apollo Tyres investors are saying that the deal should not see the light of the day considering the volatility in the Indian currency which would put extra burden on the Indian company. After falling by 40% within days of deal announcement, Apollo Tyres shares have recovered marginally and is now trading at Rs 69 a share on Monday morning.

The bankers to Apollo are also cagey about their exposure to the transaction at a time when the rupee is hovering at around Rs 63 to a dollar as compared to the Rs 58 to a dollar when the deal was announced. Bankers say though the rupee has recovered from Rs 68 to a dollar, it is a big risk factor to Apollo.