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Mumbai, Oct. 5: Apollo Tyres’ $2.5-billion buyout of Cooper Tire of the US is in serious jeopardy.
On Friday, the American tyre maker filed a complaint in the Delaware Chancery Court in the US demanding that the Delhi-based company be compelled to quickly close the deal they struck on June 12.
The boards of both the companies have already approved the deal.
On September 30, shareholders of Cooper Tire cleared the buyout plan that offered $35 per Cooper share.
Cooper says in its complaint that Apollo is dilly-dallying on finalising an agreement with the United Steelworkers (USW), which represents Cooper’s employees at facilities in Findlay, Ohio and Texarkana, Arkansas.
Last month, a US arbitrator blocked the sale of two of the three Cooper plants as the unionised workers hadn’t given their consent to the deal. Workers have been concerned over the terms of the deal which they feel will pile Cooper Tire with onerous debt.
At that time, Apollo Tyres had said it was looking forward “to working with Cooper and the USW to resolve this matter”.
Apollo is clearly peeved with Cooper Tire’s sudden move to file a complaint against it in a chancery court in the US.
“We are disappointed that Cooper has taken this unusual step and question their motives. The litigation simply has no basis,” Apollo said.
“We have been working diligently to assist Cooper in resolving its outstanding issues with the United Steel Workers,” Apollo said.
“We look forward to closing as expeditiously as possible once we reach an agreement with the USW and complete the marketing of our financing,” it added.
The latest move is one more twist in the deal that held out the prospect of creating the world’s seventh-largest tyre maker with a presence in four continents.
In July, Cooper Tire’s partner in China — the Chengshan Group — had gone to court seeking the dissolution of the venture. The Weihai Intermediate People’s Court postponed the hearing without specifying a date.
Cooper logic
It isn’t clear why Cooper Tire is in such a rush to close the deal when there are certain aspects that remain unresolved both in the US and China.
Under the terms of the deal, both Apollo and Cooper Tire can call off the deal if it “has not been consummated on or before December 31, 2013”.
After securing its shareholders’ approval, Cooper Tire could assert that it had completed all its obligations outlined in the agreement and it’s time for Apollo to put up the money and wrap up the deal.
Cooper is required to send a written notice to this effect. That will oblige Apollo to “consummate the merger within three business days after the delivery of such a notice”.
If Apollo baulks, Cooper can call off the deal after asserting that it “stood ready, willing and able to consummate the merger and the other transactions contemplated hereby through the end of such three business-day period”.
Apollo could then run the risk of having to cough up a reverse termination fee of $122.5 million as penalty for failing to fulfil its obligations.
If Cooper intends to terminate the agreement on the ground that Apollo failed to meet its obligations, it must issue a written notice at least 30 days prior to such termination, stating the company’s intention to terminate this agreement.
Apollo will then be obliged to pay the penalty “no later than two business days after such termination”.
If it fails to do so, it runs the risk of having to pay “interest on such amount from and including the date payment of such amount was due to but excluding the date of actual payment at the prime rate set forth in the Wall Street Journal in effect on the date such payment was required to be made plus 1 per cent, together with reasonable legal fees and expenses incurred in connection with such claim, suit, proceeding or other action”.
But Apollo isn’t expected to let such a claim go unchallenged. It has in the past asserted that Cooper Tire should sort out the tangle with the workers in the US and China. It can also argue that the deal could not have been closed with these two major roadblocks unresolved.
