Apollo Tyres Vice Chair­man and Man­ag­ing Di­rec­tor Neeraj Kan­war

Business Sphere - - Contents - Mu­n­ish Shekha­vat

Apollo Tyres’ USD 2.5 bil­lion deal to ac­quire Cooper Tire has run into rough weather as its de­mand for price re­duc­tion be­cause of prob­lems re­lated to the US firm’s op­er­a­tions in China and con­ces­sions to work­ers’ union has been re­jected by the lat­ter. Ac­cord­ing to a com­plaint filed by Cooper in a US court, Apollo wanted a price rene­go­ti­a­tion “far greater than the USD 2.50 re­duc­tion it had ear­lier pro­posed, and at one point ref­er­enc­ing ‘USD 8 or USD 9’ per share”. As per the orig­i­nal deal an­nounced in June this year, Apollo had agreed to buy Cooper at USD 35 per share in an all cash trans­ac­tion. The In­dian firm ac­cused Cooper of mis­rep­re­sent­ing facts about its Chi­nese op­er­a­tions and also of un­will­ing­ness to give fi­nan­cial con­ces­sions to worker’s union, United Steel­work­ers (USW), but the US firm as­serted that the risks were part of their deal. On its part Apollo said the com­pany and its fi­nanc­ing banks, Mor­gan Stan­ley, Deutsche Bank, Gold­man Sachs and Stan­dard Char­tered Bank were jus­ti­fied un­der their merger agree­ment to ask Cooper to pro­vide up­dated fi­nan­cial state­ments and guid­ance “in light of the sig­nif­i­cant and unan­tic­i­pated costs that go well be­yond those Apollo is ob­li­gated to bear un­der the merger agree­ment. “Cooper has ac­knowl­edged to Apollo that some price re­duc­tion is war­ranted. The is­sue now is by how much.” It added: “While Apollo con­tin­ues to be sup­port­ive of Cooper’s ef­forts to es­tab­lish con­trol over its sub­sidiary’s op­er­a­tions and to as­sert Cooper’s rights against its JV part­ner, Apollo can­not be re­spon­si­ble for Cooper’s fail­ures to do so.” When con­tacted, Cooper Tire & Rub­ber Com­pany Vice Pres­i­dent, Com­mu­ni­ca­tions & Pub­lic Af­fairs Anne Ro­man said the sit­u­a­tions with the USW and the joint ven­ture part­ner and union in China a di­rect re­sult of the merger agree­ment and risks Apollo as­sumed un­der the merger agree­ment. On the price re­duc­tion, she said: “Cooper is act­ing in the best in­ter­ests of our share­hold­ers, who over­whelm­ingly ap­proved the pend­ing merger with Apollo for USD 35 per share. Cooper has not agreed that a re­duc­tion in share price is war­ranted.” Ac­cord­ing to Cooper’s com­plaint in the Court of Chancery, Delaware, “On Oc­to­ber 3, Apollo’s rep­re­sen­ta­tives again in­formed Cooper that Apollo wanted a price rene­go­ti­a­tion, this time sug­gest­ing a price re­duc­tion far greater than the USD 2.50 re­duc­tion it had ear­lier pro­posed, and at one point ref­er­enc­ing ‘USD 8 or USD 9’ per share.” “...Cooper has breached ma­te­rial rep­re­sen­ta­tions and covenants, in­clud­ing with re­spect to its ma­jor­i­ty­owned China sub­sidiary due to the fact that Cooper has no con­trol over

the sub­sidiary or ac­cess to its books and records,” Apollo said. It also re­futed Cooper’s com­plaint filed last week in a US Court that it was seek­ing to de­lay an agree­ment with the USW, which rep­re­sents Cooper em­ploy­ees at fa­cil­i­ties in Find­lay, Ohio and Texarkana, Arkansas. “Apollo has in­di­cated to the USW in dis­cus­sions over the past two weeks that Apollo is will­ing to make ma­te­rial con­ces­sions to the USW, sub­ject to ar­rang­ing for ad­di­tional fi­nanc­ing or fi­nan­cial con­ces­sions. Cooper had been un­will­ing to pro­vide sim­i­lar terms to the USW in ne­go­ti­a­tions over the three month pe­riod be­fore its ar­bi­tra­tion set­back,” the In­dian firm said. Elab­o­rat­ing on the is­sues re­lated to Cooper’s China op­er­a­tions, Apollo said: “Cooper’s in­abil­ity to ac­cess the fa­cil­i­ties of its Chi­nese sub­sidiary, to de­ter­mine what prod­ucts this sub­sidiary is pro­duc­ing or to whom those prod­ucts are be­ing sold, to track or con­trol how its funds are be­ing spent or even to ac­cess op­er­at­ing or fi­nan­cial in­for­ma­tion, ei­ther phys­i­cally or re­motely, goes well be­yond any typ­i­cal work stop­page.” The com­pany has asked Cooper to con­firm that it has suf­fi­cient con­trol over and ac­cess to its ma­jor­ity-owned sub­sidiary in China to per­mit it to de­liver cur­rent con­sol­i­dated fi­nan­cial in­for­ma­tion and au­di­tors’ com­fort letters and that Cooper is in com­pli­ance with covenants and rep­re­sen­ta­tions in the merger agree­ment. “To date, Cooper has been un­able or un­will­ing to pro­vide these con­fir­ma­tions,” Apollo said, adding that “Cooper has mis­rep­re­sented its man­age­ment and con­trol of this as­set (China JV) to Apollo and to its own share­hold­ers”. With re­spect to China, Ro­man said that the com­pany has been pre­vented by the joint ven­ture part­ner and union ac­cess to cer­tain op­er­a­tional and fi­nan­cial in­for­ma­tion. “We con­tinue to work to­ward re­solv­ing the is­sues in China through com­mu­ni­ca­tion with the work­ers, union and the joint ven­ture part­ner,” she added. In Au­gust, Cooper had said the strike by over 5,000 Chi­nese work­ers at Cooper Cheng­shan -- a 65:35 joint ven­ture be­tween Cooper and China’s Cheng­shan Group -- against the US par­ent com­pany’s takeover by Apollo Tyres, will not ham­per the Rs 14,500 crore (USD 2.5 bil­lion) deal. De­spite their dif­fer­ences, both Apollo and Cooper stressed that they looked for­ward to pro­ceed with the trans­ac­tion that would make the com­bined com­pany the sev­enth-largest tyre com­pany in the world and will have a strong pres­ence in high growth mar­kets across four con­ti­nents. Ear­lier this year, in one of the big­gest over­seas ac­qui­si­tions by an In­dian firm, Apollo Tyres had an­nounced to buy US-based Cooper Tire & Rub­ber Co in an all-cash deal val­ued at about Rs 14,500 crore (USD 2.5 bil­lion). Post the trans­ac­tion, Apollo Tyres will be­come the 7th largest tyre maker in the world by rev­enue at USD 6.6 bil­lion from its cur­rent 16th po­si­tion at USD 2.5 bil­lion and give it greater ac­cess to US, the se­cond largest au­to­mo­bile mar­ket in the world af­ter China. As part of the deal, Apollo Tyres will take over the op­er­a­tions of Cooper, in­clud­ing eight plants and 14,000 em­ploy­ees in dif­fer­ent parts of the world. The Amer­i­can firm is the 11th largest tyre maker in the world with a rev­enue of over USD 4 bil­lion. In terms of tyre pro­duc­tion, Apollo’s ca­pac­ity will more than dou­ble from 1,500 tonnes per day to 3,500 tonnes per day, Apollo Tyres Vice Chair­man and Man­ag­ing Di­rec­tor Neeraj Kan­war had said in a con­fer­ence call. The ac­qui­si­tion ranks among the ten big­gest over­seas ac­qui­si­tion by In­dian firms, which in­cludes Tata Steel’s takeover of Corus for USD 12.2 bil­lion in 2007; Bharti Air­tel’s ac­qui­si­tion of Zain Africa for USD 10.7 bil­lion in 2010, Aditya Birla group Hin­dalco’s ac­qui­si­tion of Novel­lis for USD 6 bil­lion in 2007 and ONGC’s ac­qui­si­tion of Rus­sia based Im­pe­rial En­ergy for USD 2.8 bil­lion in 2008. This is Apollo’s third ma­jor over­seas ac­qui­si­tion af­ter tak­ing over Dun­lop South Africa for Rs 290 crore in 2006, which it has sold to Ja­panese Su­mit­omo Rub­ber In­dus­tries for USD 60 mil­lion (about Rs 340 crore) last month. In 2009, Apollo ac­quired Nether­lands based winter-tyre maker Vre­destein Ban­den BV for an undis­closed sum. Apollo Tyres had said un­der the terms agree­ment ap­proved by the boards of direc­tors of both com­pa­nies, Cooper stock­hold­ers would re­ceive USD 35.00 per share in cash, which was a 40 per cent pre­mium to Cooper’s 30day vol­ume-weighted av­er­age price. As part of the plan, a con­sor­tium of four banks Mor­gan Stan­ley, Deustche Bank, Gold­man Sachs and Stan­dard Char­tered will raise USD 2.5 bil­lion of new debt for Apollo. Of this while USD 1.8 bil­lion will be raised in through is­sue of bonds, an­other USD 300 mil­lion will be brought in via as­set based lend­ing. An­other USD 450 mil­lion will be raised by an off-shore arm of Apollo and guar­an­teed by the par­ent. Apollo Tyres ex­pects to close the trans­ac­tion within the se­cond half of 2013 and it will delist Cooper from New York Stock Ex­change to be­come a pri­vately held com­pany. At present, Apollo doesn’t have op­er­a­tions in the US and sup­plies tyres in the coun­try through its Euro­pean arm.

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Apollo Tyres Vice Chair­man and Man­ag­ing Di­rec­tor Neeraj Kan­war

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