Cooper Tire Terminates Merger Deal With India's Apollo Tyres; Both Companies Vow To Take Legal action Against Each Other

Cooper Tire & Rubber Co (NYSE:CTB) on Monday said that it was terminating a proposed $2.5 billion merger agreement with India’s Apollo Tyres (BOM: 500877), ending a month-long bitter standoff, after differences arose between the two sides over labor and pricing issues.

In a statement issued by the company on Monday, Cooper Tire said that the decision to terminate the deal was taken after Apollo notified that it had failed to find funds for the proposed acquisition. The unilateral announcement of the deal's termination came just 48-hours before the deadline the companies had set to complete the transaction. According to merger deal announced by the companies in June 2012, Apollo was to acquire Cooper in an all-cash deal worth $2.5 billion, or $35-a-share, representing a 40 percent premium on the latter’s 30-day weighted average price.

“While the strategic rationale for a business combination with Apollo is compelling, it is clear that the merger agreement both companies signed on June 12 will not be consummated by Apollo and we have been notified that financing for the transaction is no longer available,” Roy Armes, Cooper’s chairman and CEO, said in a statement. “The right thing for Cooper now is to focus on continuing to build our business.”

Apollo Tyres, which expressed disappointment at Cooper’s termination of the deal that could have transformed the Indian company into the world’s seventh-largest tire manufacturer, had faced several obstacles from the beginning, including labor disputes and lawsuits.

Apollo blamed the U.S. tire maker for not submitting a complete picture of the working of Cooper’s joint venture in China, which it claimed was a key obstacle for Apollo in its efforts to raise capital. In October, Cooper dragged Apollo to a Delaware court trying to force it to complete the deal with the agreed conditions, while the Indian company sought a discount on the purchase price of up to $9 a share, citing labor problems and other issues at Cooper’s U.S. and China units. Last month, the Delaware court ruled in favor of Apollo Tyres, saying the Indian company had not breached its obligations.

“Apollo has made exhaustive efforts to find a sensible way forward over the last several months, however, Cooper has been unwilling to work constructively to complete a transaction that would have created value for both companies and their shareholders,” Apollo Tyres, said in a statement according to The Economic Times, adding that “Cooper’s actions leave Apollo no choice but to pursue legal remedies for Cooper's detrimental conduct."

Chengshan Group, Cooper's joint-venture partner in China, had opposed the merger plan with Apollo and had sued its American partner, seeking to dissolve the partnership. At the same time, Apollo also faced labor challenges at Cooper’s U.S. unit, where it failed to reach a contractual agreement with labor unions.

Apollo claimed that the labor issues and a lack of cooperation from Cooper on its Cooper Chengshan Tire, or CCT, unit in Rongcheng, made it difficult for the Indian company to raise the funds needed for the acquisition, while Cooper argued that both issues have roots in the merger deal.

"While Cooper believes Apollo has breached the merger agreement, and we will continue to pursue the legal steps necessary to protect the interests of our company and our stockholders, our focus will be squarely on our business and moving it forward," Armes said.

Cooper also said it will work independently to solve issues at its China unit.

“The issues at CCT were driven by the merger agreement, and with the agreement now terminated, Cooper is working independently to restore normal operations at CCT, including obtaining the information needed for Cooper to resume regular financial reporting as soon as possible,” the company said.

It is not clear, whether either of the two companies will be pay a break-up fee to the other for breach of contract.

According to the deal, Apollo Tyres, India’s second-largest tire maker will be liable to pay $112.5 million to Cooper if it breaches the contract, while Cooper will have to pay $50 million in break-up penalty if it chooses to withdraw from the deal. If the deal stretches beyond Dec. 31, the breakup clause does not apply.