Apollo, Cooper disagree over $2.5 billion deal value
Oct 07 2013 , Mumbai
The disagreement over price came to light after Cooper on Friday filed a complaint in a U.S. court to force Apollo to close the acquisition "in a timely manner," and casts further doubt over whether the deal will ultimately succeed.
The two companies have until the end of the year to resolve their pricing dispute and close the transaction.
Apollo said in a statement late on Sunday that it may have to bear "significant and unanticipated costs" that were "well beyond" those it was obligated to bear under the initial merger agreement.
Those costs are related to labour issues both in the United States and in China, where workers at Cooper's joint venture have been on strike for three months in opposition to the deal.
"Cooper has acknowledged to Apollo that some price reduction is warranted. The issue now is by how much," Apollo said in a statement late on Sunday.
Cooper disputed that. "Cooper has not agreed that a reduction in share price is warranted," it said in a statement.
Under the initial agreement in June, Cooper shareholders stand to receive $35 per Cooper share, a premium of more than 40 percent to its price at the time. Cooper shares initially climbed towards the buyout price but have lost about 15 percent from that recent peak as obstacles to the deal emerged.
Shares in Apollo, which fell 25 percent when the deal was announced, gained as much as 3.8 percent on Monday in a sign that some investors would welcome the collapse of the deal, which if completed would be the second-largest U.S. acquisition by an Indian firm.
The acquisition is to be funded entirely through new debt, most of which will be raised through Cooper.
Apollo is aiming to gain a foothold in China and the United States - the two biggest auto markets - through the acquisition.
Besides opposition from Cooper's China joint venture partner and workers, a U.S arbitrator has ruled that Ohio-based Cooper cannot sell two of its U.S. factories until a new collective bargaining agreement is reached between Apollo and members of the plants' union, the United Steelworkers (USW).
"Apollo has indicated to the USW in discussions over the past two weeks that Apollo is willing to make material concessions to the USW, subject to arranging for additional financing or financial concessions," Apollo said.
Cooper, however, said the labour issues were a result of the acquisition and were risks that the Indian company assumed under the agreement.
Cooper on Friday said it had satisfied its conditions under the deal after receiving approval from its shareholders last week, and that Apollo was breaching the merger agreement by delaying resolution of the USW issue.
While workers at Cooper's China joint venture, Cooper Chengshan Tire Co, in eastern Shandong province, have been striking against the deal, Cooper's Chinese partner has filed a lawsuit seeking to dissolve their joint venture.
Last month, the Chinese plant's union said the workers refused to make Cooper-branded tyres, and would stop providing the JV's production, operation and financial information.
"Cooper has misrepresented its management and control of this asset to Apollo and to its own shareholders," Apollo said in its statement.
"While Apollo continues to be supportive of Cooper's efforts to establish control over its subsidiary's operations and to assert Cooper's rights against its JV partner, Apollo cannot be responsible for Cooper's failures to do so," it added.
Apollo said Cooper has breached material representations and covenants.
Four banks - Morgan Stanley, Deutsche Bank, Goldman Sachs and Standard Chartered Bank - have committed to finance Apollo's deal until December 31, 2013.
Apollo said the company and its lenders were justified in seeking updated financial statements and guidance from Cooper.
"If Apollo has found things which were not in line with what have been represented to them, they are fully within their rights to ask for the price to be reduced or even (seek) damages, depending on what was originally represented to them," said Harish H.V., head of corporate finance practice at advisory Grant Thornton in India.
"Now there is a distinct possibility of the deal not happening, whether it is 10 percent, 40 percent or 80 percent difficult to call, but that was not the case earlier," he said.