Proposed Cooper-Apollo merger deal goes kaput

A deal that was being touted as one of the biggest acquisitions of a US based organization by an Indian firm has finally been terminated after courtroom battles, attempts at forcing the deal at a previously agreed price, labour union demands and last but not the least, investor in a subsidiary crying foul.

Contours of the deal

• India based Apollo Tyres agreed to buy Cooper Tire and Rubber Company in June for $2.5 billion. This valuation meant a $35 per share offer for Cooper, well above its prevailing market price of nearly $26 per share.
• The deal was to be jointly debt-funded by Standard Chartered, Goldman Sachs, Morgan Stanley and Deutsche Bank on the basis of financial information that was to be provided by Cooper.
• The post-merger behemoth would have been the seventh largest tyre manufacturer in the world with an international presence. More than 60 percent of Apollo's revenues come from the Indian market. Sales in the domestic market are seeing a decline owing to the sluggish overall economic growth which has hit the auto sector hard.

The roadblocks

• Executives and workers at Cooper Chengshan Tire, Cooper's Chinese subsidiary which accounted for nearly a quarter of its revenues, were not in favour of an Indian company taking over the firm. CCT was earlier a 51:49 JV but the Chinese investor reduced his stake to 35% in a $18 million deal. For the Apollo-Cooper merger to materialize Che Honghzi demanded $400 million for his 35% holding in CCT.
• Labour Union United Steelworkers too objected to the completion of the deal without negotiation of a new contract. Nearly 3000 workers in Cooper's Texas and Ohio facilities are associated with this union. A US court too affirmed that Apollo and Cooper could not go ahead with the deal without renegotiation of the labour contract even though Cooper did try to push Apollo Tyres into deal completion.

End result

• Courtesy the disputes with the labour union and the Chinese JV partner, Apollo Tyres contended that the deal be valued lower than the earlier $2.5 billion offer at $35 per share. Cooper wanted to stick to the original contract signed in June.
• Cooper Tire and Rubber Company lost access to financial data at its Chinese subsidiary as executives refused to share information with the US based firm. This information was vital for the completion of deal as it was to be funded via debt. Cooper has been unable to meet its legal obligation of financial reporting owing to this dispute.
• Management at the Chinese subsidiary also reduced production at the plant while Cooper brand tyres were not manufactured at all. This lead to substantial reduction in revenues collected.
• Cooper terminated the deal on December 30, 2013; a day before it was to officially expire on December 31, 2013.

What next? 

• Both the parties are now aiming for compensation in the form of breakup fee and damages. If granted, Cooper is liable to pay $50 million in breakup fee while Apollo will have to shell out $112.5 million.
• As Delaware Supreme Court had earlier refused to order Apollo Tyres to complete the deal without the completion of negotiations with United Steelworkers and it is Cooper Tire and Rubber Company that has terminated the deal, the chances of compensation appear bleak.