Cooper, Apollo at odds over merger terms (updated)

FINDLAY, Ohio (Oct. 6, 2013) — Cooper Tire & Rubber Co. is asking the Delaware Chancery Court in a complaint to compel India's Apollo Tyres Ltd. to "expeditiously close the pending" $2.5 billion merger of the two companies.

Cooper in essence is accusing Apollo of attempting to renegotiate the firms' merger pact by "seeking to delay an agreement" with United Steelworkers Union locals at Cooper Tire plants in Texarkana, Ark., and Findlay, as ordered by an arbitrator on Sept. 13 after the USW sought arbitration, claiming Cooper's planned sale to India's Apollo Tyres Ltd. violates successorship provisions of the union's contracts with Cooper.

Apollo, in a statement of its own, claims that arbitrating the contracts at these two plants would involve making "material concessions" to the USW that would necessitate the need for financing or financial concessions in the terms of the deal with Cooper, and that Cooper "misrepresented its management and control" of the Cooper Chengshan (Shandong) Tire Co. Ltd. subsidiary in China to Apollo and to its own shareholders.

"Apollo finds it implausible that Cooper, having failed to resolve these issues for several months, would realistically expect to force Apollo to concede material issues on Cooper's accelerated timeline," the company said.

From Cooper's point of view, Chairman, CEO and President Roy Armes said: "Cooper has an obligation to protect the rights of our stockholders, who voted overwhelmingly in favor of the merger," said Cooper Chairman, CEO and President Roy Armes.

"With their approval, we have met our conditions for closing. The complaint…is a necessary step in the process to assure that the terms of the merger agreement are met as required and that we do everything possible to get the transaction closed promptly," he added in a prepared statement.

The Delaware Court of Chancery is recognized as "preeminent forum" for the determination of disputes involving the internal affairs of Delaware corporations, the court states on its website.

By delaying resolving the arbitration with the USW, Apollo is breaching the merger agreement, Cooper claims.

"The strategic rationale for the merger with Apollo is solid, and we look forward to finalizing the transaction…," Mr. Armes said.

"Apollo is an outstanding company. We are confident both organizations will work effectively together to take advantage of the many opportunities this compelling transaction will offer…," Mr. Armes added.

While continuing to stress its belief that a merger with Cooper is "compelling from a strategic perspective," Apollo said it has engaged actuarial advisors to evaluate the financial impact of certain of the USW's requests, some of which it accuses Cooper of having been "unwilling to provide" in the three months since Cooper and Apollo announced their intent to merge and the opening of arbitration.

Additionally, Apollo said it has asked Cooper to confirm that Cooper 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, Apollo said, Cooper has been "unable or unwilling to provide these confirmations."

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.

While Apollo continues to support Cooper's efforts to establish control over Cooper Chengshan and to assert Cooper's rights against its joint venture partner in China, "Apollo cannot be responsible for Cooper's failures to do so," the Indian firm said.

Apollo and its financing banks, Morgan Stanley, Deutsche Bank, Goldman Sachs and Standard Chartered Bank, Apollo said, "are justified under the merger agreement to request that Cooper 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.

Apollo claims that "Cooper has acknowledged…that some price reduction is warranted. The issue now is by how much."

Cooper disputes this claim by Apollo.

On top of the USW issue, Cooper has breached material representations and covenants, including with respect to its majority-owned China subsidiary due to the fact that Cooper has no control over the subsidiary or access to its books and records.

"Under the circumstances, Cooper's decision to file a complaint at this time is inexplicable and can only be seen as a diversionary smokescreen or an unfortunate acknowledgement that Cooper will be unable to meet its obligations necessary to complete the transaction," Apollo said.