Merger off for Cooper Tire, Apollo

djournal-In-the-NewsBy Dennis Seid

Daily Journal

What was once called a “good marriage” dissolved into a bitter breakup Monday when Cooper Tire & Rubber Co., a major Tupelo employer, said it was terminating its merger with Apollo Tyres.

“It’s time to move our business forward,” said Cooper Tire CEO Roy Armes.

The $2.2 billion merger – which Apollo and Cooper had said was valued closer to $2.5 billion – has been fraught with obstacles since its June 12 announcement.

While the boards of both companies and their shareholders approved the merger, the deal didn’t take long to start falling apart.

Cooper’s joint venture plant in China, Cooper Chengshan Tire, went on strike in July. The 5,000 Chinese workers at the plant – which is 65 percent owned by Cooper – refused to make Cooper-branded tires and would not allow Cooper management to access key information, including sales and production figures.

Cooper also accused Apollo of delaying the merger. Apollo said Cooper had misled them on the Chinese plant; Cooper said it was a risk that Apollo knew about.

After weeks of court battles, Findlay, Ohio-based Cooper said it was time to end the deal.

“It became clear Apollo wasn’t going to close the deal,” said Cooper CFO Brad Hughes in a conference call Monday. “It’s time to move on.”

The merger would have created the world’s seventh-largest tire maker, but the CCT plant was the major sticking point. The Chinese said it would be a clash of cultures for Apollo to become the owner of the company. It also was revealed during court proceedings that Cooper’s Chinese partner, Chengshan Group, had made a merger offer prior to Apollo’s offer, but was turned down.

The strike also prevented Cooper from filing its quarterly earnings report in November, and Apollo said it was a reason why it could not secure financing for the deal.

Apollo had asked to pay less than the original offer of $35 a share for Cooper, but Armes said he wanted to “set the record straight.”

“Cooper never received a proposal from Apollo to reduce the share price that included committed financing or that did not come with unreasonable risk for our company and our stockholders,” he said in the conference call.

In prior court filings, Cooper accused Apollo of breaching the merger agreement.

On Monday, Cooper said it would take “appropriate legal steps” against Apollo, including going after a $112.5 million reverse termination fee. Cooper also said it didn’t think a $50 million breakup fee would apply.

Armes said Cooper would now focus on resolving issues related to the CCT plant.

“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. … once the situation at CCT is resolved, Cooper will be in position to address additional options for the deployment of capital targeted at returning value for our stockholders.”

He also said the company remains in good shape.

“We went into this merger in a strong position and as we exit this agreement, Cooper remains a strong company. … Cooper is expecting to continue to be profitable for the second half of 2013 and to end this year with a strong balance sheet.”

Another labor dispute with two of Cooper’s three U.S. plants – in Findlay, Ohio, and Texarkana, Ark. – also caused a headache. The United Steelworkers successfully argued that a new labor deal had to be approved by the union before a new owner could take over. A tentative agreement was reached in November.

Cooper said Monday that the USW had voted on two amendments – one if the merger fell through, one if it closed successfully. Cooper said, “we believe the amendments are mutually beneficial for both (the union and Cooper).”

Cooper’s third U.S. plant in Tupelo, which employs 1,300, is not unionized.

But Cooper will face a lawsuit from Apollo, which said it, too, would pursue damages.

“Apollo has made exhaustive efforts to find a sensible way forward over the last several months,” the company said. “However, Cooper has been unwilling to work constructively to complete a transaction that would have created value for both companies and their shareholders. Cooper’s actions leave Apollo with no choice but to pursue legal remedies for Cooper’s detrimental conduct.”

Cooper shares fell in early trading Monday on the New York Stock Exchange, but closed $1.24 higher, or 5.4 percent, at $24.20.

dennis.seid@journalinc.com