From Cooper's viewpoint, Chairman, CEO and President Roy Armes said the firm "has an obligation to protect the rights of our stockholders, who voted overwhelmingly in favor of the merger.
"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.
Shareholders representing 78 percent of Cooper's outstanding shares voted at the Sept. 30 meeting, with 96 percent of those voting favoring the offer, Cooper said. The positive vote represents 74 percent of all outstanding shares.
Since peaking at $34.80 a share in mid-June, Cooper's share price slipped back to less than $26 a share on Oct. 7.
Cooper also is asking the court to award it monetary damages from Apollo, in an "amount to be proven at trial," sufficient in scope to compensate it for losses incurred due to "Apollo's knowing, deliberate and material breaches of contract." It also seeks reimbursement of attorneys' fees and any other costs in connection with bringing its action.
Cooper filed the suit in Delaware because both it and defendant Apollo Acquisition Corp. — an entity set up by Apollo Tyres for the purpose of entering into the merger agreement — are Delaware corporations.
Should Apollo opt to back out of the proposed takeover, it would face a "reverse buyout" penalty of $112.5 million, according to Cooper documents. However, if the deal drags out to Dec. 31 without resolution, the parties can walk away from the deal, provided neither has "materially breached" the agreement.
The two parties are facing a key deadline of Nov. 15, according to financial community sources who said that's the date the banks arranging the financing for Apollo have said they must have complete financial accounting from the two sides in order to continue with the planned launch of securities.
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…."
While continuing to stress its belief that a merger with Cooper is "compelling from a strategic perspective," Apollo said it has engaged actuarial advisers 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.
In its suit, Cooper accuses Apollo of meeting with USW representatives on several occasions without anyone from Cooper present, in spite of requests by the USW to the contrary.
Additionally, Apollo said it has asked Cooper to confirm that Cooper has sufficient control over and access to Cooper Chengshan (Shandong) Tire Co. Ltd., 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."
In addition, the firm 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.
In its suit, Cooper acknowledges that workers at the Cooper Chengshan factory, backed by the minority owners, Chengshan Group, are refusing to build any Cooper-brand tires and have rebuffed Cooper efforts to enter the factory, and that management there is blocking Cooper's access to financial statements and has stopped entering financial data into accounting systems to which Cooper has access.
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 tire maker 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.
On top of the USW issue, Apollo claims 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.
The Delaware Court of Chancery is recognized as the "preeminent forum" for the determination of disputes involving the internal affairs of Delaware corporations, the court says on its website.
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To reach this reporter: [email protected], or 330-865-6145.
