Apollo Tyres Vice Chairman and Managing Director Neeraj Kanwar
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.
Apollo Tyres Vice Chairman and Managing Director Neeraj Kanwar