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US court dismisses Cooper’s appeal to force Apollo Tyres for completing $2.5B deal

17 December, 2013

A US court has dismissed Cooper Tire & Rubber Co’s bid to force Apollo Tyres to complete its pending $2.5 billion deal to buy out the American tyre maker. This, in effect, allows 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 has 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 as much as 8.8 per cent on the Bombay Stock Exchange early in the day and were trading at Rs 88.40 a piece, an increase of 4.31 per cent from its previous close in mid-day trades on Tuesday.

In a statement, Apollo Tyres said that the company is pleased by the Delaware’s highest court decision. The court also said that the appeal by Cooper was improvidently granted in the first place.

“Cooper’s litigation strategy to date has done nothing but generate unnecessary cost for its shareholders and for Apollo, and compound the obstacles that Cooper’s situation has created for this merger,” Apollo Tyres said in the statement.

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 their 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. Apollo Tyres has reportedly claimed that Cooper has acknowledged that some price reduction is warranted, which is disputed by the American tyre maker.

It had said Apollo Tyres is looking to cut the deal value from $35 per share to $32.5 a share and is relooking at the deal as it has had a ‘buyer’s remorse’ after the deal sunk its share price back in India.

Cooper later disclosed that Apollo Tyres’ representatives want a further price renegotiation and at one point referred to price cut by $8 or $9 per share or a quarter of the initial proposal.

Apollo Tyres said that it was under no obligation to close the transaction, in part because Cooper had not provided updated financial information. As per the terms of the bid, the deal can be terminated without any financial penalty after December 31.

(Edited by Joby Puthuparampil Johnson)


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US court dismisses Cooper’s appeal to force Apollo Tyres for completing $2.5B deal

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