Cooper Tire heads to court to save $2.5 bn Apollo deal
Wilmington, Delaware: Cooper Tire & Rubber Co of the United States and Apollo Tyres Ltd of India should be enjoying a honeymoon. Instead they head to court on Tuesday over their failure to close Apollo`s planned USD 2.5 billion takeover of Cooper by last month`s deadline.
Hanging on the outcome of a three-day trial is a deal that would create the seventh-biggest tire maker in the world and a 40 percent premium that Apollo offered Cooper shareholders for their stock.
The transaction would transform Apollo from a company dependent on its home market, with tire brands like Apollo and Vredeste, to one that gets nearly 80 percent of its revenues overseas.
Analysts called the deal risky for Apollo with little room for error and the company`s shares plunged nearly 40 percent soon after the takeover was unveiled.
The result is a lawsuit in Delaware`s Court of Chancery in which Cooper, which has 13,000 employees worldwide, is seeking a court order to close the deal.
The U.S. manufacturer known for Cooper, Roadmaster and Mastercraft tires, says Apollo has a case of buyer`s remorse. Apollo and its biggest shareholder group, the Kanwar family of New Delhi, regretted the deal after analysts released negative reports on it, Cooper`s lawyers wrote in court papers.
Apollo has said it is committed to the takeover, but not at the current price.
It has alleged Cooper failed to disclose that it did not have control over its Chinese joint venture and does not even know what is being produced or sold there, which accounts for as much as a quarter of its earnings.
The Indian company also alleged it cannot close the deal until it gets accurate, updated financial information from Cooper.
Brian Quinn, a professor at the Boston College of Law, said the trial will turn on whether Apollo met its requirement to use its "best efforts" to close the deal.
Cooper said Apollo has not done so because it is dragging its feet in talks with the United Steel Workers union. Cooper struck a deal with the union on Wednesday, an agreement that Apollo called a "last-minute stunt" to "hijack" the trial.
Determining best efforts will require the judge to digest plenty of testimony and evidence.
Cooper and Apollo said they anticipate calling as many as 22 witnesses, including executives from the companies, their advisers, union leaders and bankers.
Both sides said they anticipate calling Apollo Vice Chairman Neeraj Kanwar and Cooper Chief Executive Roy Ames. Apollo is resisting attempts by Cooper to call Onkar Kanwar, the chairman of Apollo.
The three-day, nonjury trial will be held in front of Sam Glasscock, a judge on Delaware`s Court of Chancery. The two parties agreed to the court, which has a reputation for deciding complex business disputes quickly.
The court put the case on a fast track, and the trial begins just weeks after Cooper filed its lawsuit.
Larry Hamermesh, a professor at Widener University School of Law, said Glasscock could rule within days after the trial ends, although ultimately his ruling may just serve as a guide to settlement talks.
"It`s almost impossible to think this thing ends on anything other than a negotiated basis," Hamermesh said.
Hamermesh said the Chinese venture lock-out and other problems set the deal apart from other "buyer`s remorse" lawsuits. In those cases, the Court of Chancery has ordered buyers to close a transaction, as it did in Tyson Foods Inc`s 2001 deal for IBP Inc.
Investors seem to doubt Glasscock will order the deal to close on the original $35 per share terms. Cooper Tire stock closed at $25.93, down 0.3 percent on Friday, or about 25 percent below the Apollo price.
Unlike a jury trial, Glasscock will be able to ask his own questions of the lawyers and witnesses, which will focus the proceedings on issues that most concern him.
Quinn said both sides will be listening intently for signals that could impact settlement negotiations. "They`ll be trying to read the tea leaves and which way he is leaning."
Glasscock`s ruling can be appealed to Delaware`s Supreme Court. The state`s high court also has a reputation for moving quickly - last month it reversed a Court of Chancery judge just three weeks after the lower court had ruled in a case involving an $8.2 billion deal between Activision Blizzard and Vivendi SA.
The case is Cooper Tire & Rubber Co v. Apollo (Mauritius) Holdings Pvt. Ltd, Delaware Court of Chancery, No. 8980.