Rough ride

Mumbai, Nov. 5: The slugfest between Apollo Tyres and Cooper Tire Rubber Co over a $2.5 billion merger deal that has gone sour heads for a non-jury trial in Delaware Chancery Court today with no sign that either side is going to back down.

Judge Sam Glasscock III will decide after the three-day trial whether to grant Cooper’s request and force Apollo Tyres to consent to a new labour agreement that the US tyre maker reached with one of the unions last week.

The judge has fast-tracked the case that is being heard in Wilmington.

Cooper believes Apollo is suffering a case of buyer’ remorse — a condition resulting from an after-the-event realisation that it may have over paid when offering $35 a share for the US tyre maker’s shares in its eagerness to seal the deal.

The June 12 deal effectively gave Cooper shareholders a 40 per cent premium over the then prevailing market price of the stock.

Apollo claims it is still committed to the takeover, which will create the world’s seventh largest tyre maker but not at the price. Reports said Apollo wanted to cut the offer price by $9 a share, which Cooper is refusing to accept.

The Omkar Kanwar-owned Apollo denies the charge of buyer’s remorse and insists that the labour deal is “illusory” even as it accused Cooper of trying to hijack the case.

In September, a US arbitrator delivered a body blow to the deal when he blocked the sale of two out of three Cooper plants as the unionized workers hadn’t given their consent to the deal.

On October 30, Cooper Tire reached a tentative agreement with the unions at its plants but refused to divulge the details. The US manufacturer said the labour agreement was subject to ratification by the union membership. It added that it secured a waiver from the unions on the ratification provided the merger closed on or before November 18.

The Apollo-Cooper Tire deal had started to sour when Cooper Tire’s Chinese partner — the Chengshan Group — had gone to court in July seeking the dissolution of the venture.

The court will have to now rule whether the two events — the trouble with the unions at the US plants and the rumpus in China — qualify as “material adverse effect” events to diminish the worth of Cooper and thereby undermine the terms of the merger agreement.

Cooper believes it doesn’t qualify even though it admits that the Chinese joint venture — in which Cooper has a 65 per cent stake controlling interest — was one of the main reasons why Apollo signed the deal.

The US company says the merger agreement clearly states that a material adverse effect “will not include facts, circumstances, events, changes, effects or occurrences to the extent attributable to,” among other things, “the execution and delivery of this agreement or the public announcement or pendency of the merger or any of the other transactions or the financing, including the impact thereof on the relationships, contractual or otherwise, of the company or any of its subsidiaries with employees, labour unions, customers, suppliers or partners, and any litigation arising from allegations of any breach of fiduciary duty or violation of law relating to this agreement or the transactions contemplated by this agreement, or compliance by the company with the terms of this agreement”.

Cooper also said that on September 17 when the officials met to discuss a negotiating strategy with the unions, “the very first issue that Apollo wanted to discuss was not a negotiating strategy, but rather the prospect that the merger consideration might need to be renegotiated to account for…the incremental costs associated with any new agreement with the USW— even though those costs were associated with risks that were specifically allocated to Apollo in the merger agreement.”

Apollo, however, doesn’t see it that way.

The Gurgaon-based company has accused Cooper of taking extraordinary steps in order to “induce” the union into the agreement before the trial, the company said in a letter to Glasscock last week.

In court papers, Apollo said in October that “Cooper’s current third-quarter forecast for 2013 is $3.4 billion in revenues and $257 million in operating profit — a staggering change in that forecasts provided by Cooper in July reflected results that were 25 per cent and 48 per cent higher, respectively.”

Cooper and Apollo said they anticipated calling as many as 22 witnesses, including executives from the companies, their advisers, union leaders and bankers.

Both sides said they anticipated calling Apollo vice chairman Neeraj Kanwar and Cooper chief executive Roy Ames. Apollo is resisting attempts by Cooper to call Onkar Kanwar, the chairman of Apollo.