Cooper trial over $2.5 billion Apollo Tyres deal set for today

Wilmington, Delaware: Cooper Tire and Rubber Co.’s dispute with India’s Apollo Tyres Ltd over a $2.5 billion buyout goes before a judge in a non-jury trial set to begin on Tuesday in Delaware Chancery Court with no compromise in sight.

Judge Sam Glasscock III, who granted fast-track status to the case being heard in Wilmington, must decide whether to grant Cooper’s request and force Apollo to consent to a new labour agreement reached last week. The agreement renders Apollo’s objections to the transaction moot, Cooper said in court papers. Apollo called the labour deal illusory and accused Cooper of attempting to hijack the case.

Talks to complete the largest acquisition by an Indian company in North America soured in October amid opposition from US and Chinese workers. Apollo, based in Gurgaon, sought to cut its $35-a-share offer by as much as $9, citing the labour issues. On 4 October, the day Apollo’s purchase was originally scheduled to close, Findlay, Ohio-based Cooper sued, alleging Apollo was intentionally delaying completion.

In pretrial filings, Apollo denies it is suffering from buyer’s remorse, contending it still wants to close and Cooper hasn’t lived up to the contract. Central to Apollo’s defense is the possibility of a material adverse effect or significant change in Cooper’s worth since the contract was signed—which could kill the deal.

Cooper maintains it has complied with the sale agreement, despite troubling negotiations with the United Steelworkers union and a recalcitrant Chinese unit, and claims Apollo is angling for a better bargain.

Deal reached

Cooper said last week that it reached a deal with the United Steelworkers union, thus eliminating Apollo’s claims of an adverse change. Cooper hasn’t disclosed details of the tentative agreements with unions in Findlay and Texarkana, Arkansas, pending review and consent by Apollo. The agreements expire on 18 November.

Apollo, which snubbed Cooper’s demand to sign off on the union agreement by 4 November, accused Cooper of taking extraordinary steps in order to induce the union into the agreement before the trial, the company said in a letter to Glasscock last week.

In addition to the labour problems, Apollo also points to a lack of current financial data from Cooper, and to ambiguous projections that suggest serious future losses.

‘Staggering change’

In court papers, Apollo said in October that Cooper’s current third-quarter forecast for 2013 is $3.4 billion in revenues and $257 million in operating profit—a staggering change in that forecasts provided by Cooper in July reflected results that were 25% and 48% higher, respectively.

In its complaint, Cooper contends Apollo agreed to use its reasonable best efforts to complete the transaction or pay a $112.5 million fee to walk away from the deal.

For Cooper to win, the court in part must find that disruption at Cooper’s joint venture in China is carved-out from being a material adverse effect and that Apollo did not use its best efforts with the United Steelworkers, according to a 30 October Delaware court case overview by Churchill Capital Research.

Apollo said in court papers filed 1 November that it worked diligently to reach an agreement with the United Steelworkers and its efforts exceeded any possible standard that could be applied under the merger agreement.

Accept problems

The litigation is Cooper’s attempt to force Apollo to accept the problems at its Chinese subsidiary which go beyond a simple strike or work stoppage, the company said in the filing.

Cooper’s China venture, called Cooper Chengshan (Shandong) Tire, operates Cooper’s biggest manufacturing facility worldwide, according to Cooper Chengshan’s union. Workers at the factory stopped producing Cooper tires on 13 July in protest of the Apollo deal. Also that month, Chinese partner Chengshan Group Co. filed a lawsuit alleging that the buyout would undermine its operations. Cooper has said the litigation lacks merit.