Tire Business staff report
AKRON (Nov. 4, 2014) — The Delaware Chancery Court has ruled against Cooper Tire & Rubber Co. in Cooper's bid to recoup a $112 million breakup fee related to the failed $2.5 billion merger deal with India's Apollo Tyres Ltd.
In a statement Apollo Tyres said the “ruling vindicates our consistent stand that even as Apollo Tyres made exhaustive efforts to complete the deal,
Cooper failed to comply with its contractual obligations because it was unable to control its largest subsidiary.
“This led it to hastily litigate and ultimately led to the failure of a transaction that would have benefitted Apollo and Cooper's shareholders.”
Delaware Chancery Court Judge Sam Glasscock III ruled in late October that Cooper had not satisfied the closing conditions of the deal and therefore the breakup fee terms were negated. The case has been under review since Jan. 27 when the court ruled it would proceed with a decision on the Apollo entities' motion for declaratory judgment.
In his Oct. 31 opinion, Judge Glasscock III remarked on the complexity of the Cooper-Apollo case.
“Due to the convoluted procedural posture of this case, the parties disagree on what is left for me to decide,” he wrote.
He stressed, however, that in any one of the points Apollo raised in its briefs, it was apparent that Cooper was unable to satisfy all conditions to closing the merger deal.
“Among other reasons, acquisition of Cooper was attractive to Apollo because it would provide Apollo an entrée into the Chinese market,” Judge Glasscock wrote. “A significant part of Cooper's business was its majority ownership of an affiliate, a Chinese tire manufacturer, Chengshan Cooper Tires (CCT).”
No sooner had the merger been announced, however, than the minority owner of CCT balked. “The minority partner…either vehemently opposed the merger or saw it as an opportunity to extort value from the parties beyond what his minority interest would justify,” he wrote.
The United Steelworkers (USW) also opposed the deal, insisting it triggered the union's contractual right to renegotiating several of its bargaining agreements with Cooper.
“Initially barred from the negotiating table by Apollo due to its historically poor relations with its labor unions, Cooper became increasingly frustrated by Apollo's lack of progress in negotiating with the USW,” Judge Glasscock wrote.
“Cooper began to suspect that Apollo had grown cold to the merger and was failing to negotiate with the USW in good faith to avoid consummating the transaction.”
In any case, the takeover at CCT alone proved Apollo's contention that Cooper failed to meet all conditions for the merger, independent of the union issue, Judge Glasscock wrote.
The parties presented their arguments July 9, Cooper said in its second quarter 10Q filing.
In its own statement, Cooper said the court's ruling “noted that what took place at our [Cooper Chengshan Tire (CCT)] joint venture after the merger was announced was unanticipated, and neither Apollo nor Cooper caused it to occur.”
A sticking point in the proposed Cooper-Apollo merger was a labor action at CCT in China that led to the suspension of production of Cooper-brand products and a refusal by management there to share pertinent financial information.
“Nonetheless,” Cooper said, “the court found that [the situation at CCT] prevented Cooper from complying with its contractual obligations necessary to close the merger. As a result of the ruling, Cooper is not entitled to the reverse termination fee.
“While the decision was not what we sought in the case, our company remains focused on running our business and meeting the needs of our customers around the globe.”