American tyre maker Cooper Tire has formally terminated its proposed acquisition by Onkar Kanwar-led Apollo Tyres. The fate of the $2.5 billion deal, which could have created the world’s seventh-largest tyre maker, was doomed and would have expired on Tuesday as Apollo Tyres sought cut in deal price in light of labour union troubles in the US and threat of the Chinese venture splitting up.
“It is time to move our business forward,” said Cooper chairman, CEO and president Roy Armes. “While the strategic rationale for a business combination with Apollo is compelling, it is clear that the merger agreement both companies signed on June 12 will not be consummated by Apollo and we have been notified that financing for the transaction is no longer available. The right thing for Cooper now is to focus on continuing to build our business.”
“Our business model is strong, and despite the challenges this year, we are coming off record operating profit through the first half of the year and expect to continue to be profitable for the second half, ending the year with a strong balance sheet,” Armes said.
“Apollo is disappointed that Cooper has prematurely attempted to terminate our merger agreement. Cooper's actions leave Apollo no choice but to pursue legal remedies for Cooper's detrimental conduct," Apollo Tyres said.
Early this month a US court had dismissed Cooper’s bid to force Apollo Tyres to complete its pending $2.5 billion deal to buy out the American tyre maker. This, in effect, allowed the Indian firm to walk away from the transaction, which was seen as negative by its investors in terms of impact on its balance sheet.
The Delaware Supreme Court had dismissed Cooper’s appeal against an earlier ruling by the Delaware Chancery Court that Apollo Tyres Ltd was meeting its obligations to resolve disputes with labour unions at Cooper's plants in Ohio and Texas.
Shares of Apollo Tyres rose to its 52-week high on the Bombay Stock Exchange early in the day and last traded at Rs 101.3 a piece, an increase of 0.55 per cent from its previous close in a soft Mumbai market on Monday.
The proposed deal, announced in June, where Apollo Tyres was to acquire New York Stock Exchange-listed Cooper for $2.5 billion in an all-cash deal, would have made it the world’s seventh-largest tyre maker.
The boards of directors of both companies unanimously approved the sale of Cooper to a wholly owned subsidiary of Apollo Tyres for $35 per share, a premium of over 40 per cent to its price before the acquisition announcement, valuing the deal at $2.5 billion.
The deal has been mired by two developments, including a pending settlement with labour union United Steelworkers (USW) and troubles at Cooper’s Chinese venture.
In particular, Cooper is facing a daunting challenge in China as its local partner has threatened to dissolve the business arrangement under the JV Cooper Chengshan (Shandong) Tire Company, Ltd. (CCT) in light of the proposed takeover by Apollo Tyres. Workers at CCT have also gone on strike and have since then partially resumed work.
Cooper had earlier said that Apollo Tyres has sought to pare down the deal value as it may have to bear significant and unanticipated costs that were well beyond those it was obligated to bear under the initial merger agreement.
Cooper said addressing the situation at Cooper Chengshan Tire (CCT) in Rongcheng, China is a top priority in the near term.
Referring to Chinese issue, Apollo Tyres said that Cooper's lack of control over its largest subsidiary and inability to meet its legal and contractual financial reporting obligations had considerably complicated the situation.
“While Cooper believes Apollo has breached the merger agreement, and we will continue to pursue the legal steps necessary to protect the interests of our company and our stockholders, our focus will be squarely on our business and moving it forward,” said Cooper's chief Armes.
(Edited by Joby Puthuparampil Johnson)