Apollo Tyres surges on US court ruling on Cooper merger

Apollo tyres stock surged after Cooper Tire & Rubber Co on Monday lost its court bid to force Apollo Tyres Ltd to complete their proposed $2.3 billion merger.

The Delaware Supreme Court dismissed Cooper's appeal against an earlier ruling that Apollo was meeting its obligations to reach new contract terms with unions at Cooper plants in Ohio and Texas.

Apollo, which was set to become the world's seventh-biggest tire maker after the deal, wants to pay less than $35 per share as agreed upon at the time of merger announcement in June, citing demands by unions at Cooper plants and disruptions at Cooper's venture in China.

Under the terms of the merger, the Indian tyre maker can walk away from the deal on December 31.

The $2.5 billion deal is to be funded by new debt raised by four banks for Apollo and Cooper to fund the acquisition, US$2.1bn of which will be funded through issue of dollar bonds with a maturity period of seven to eight years.

The strain on the balance sheet at consolidated level would be the biggest risk, accroding to experts. In case of an extended slowdown in US and Europe, debt servicing will be an issue. Volatility in earnings given high sensitivity to rubber prices would be another headwind.

The deal which is highly leveraged bet for Apollo was given a thumbs down by the investors on the day (June 13,2003) of being announced when the stock crashed to its life lows. A weakening balance sheet was the key issue. There were also concerns on whether the Indian tyre maker can afford this big-ticket deal.

The stock is currently surged 6.19% at 90 on the BSE. It hit a high of 92.20 and a low of 88.30 on Tuesday. A total number of 16,679,122 shares changed hands at the bourses as compared to its 30 day average of 6,310,145.