Apollo’s Cooper Tire deal heads for crash over valuation dispute

Oct 08 2013, 03:21 IST
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Summary* Confusion over Chinese operations, demand by US workers play spoilsport

Question marks have arisen over the successful completion of the high-profile deal between India’s Apollo Tyres and US-based Cooper Tire and Rubber Co over differences on pricing, emerging out of lawsuits and labour issues at the latter’s units in the US and China.

Apollo is now looking to pay a lower price per share for Cooper than the earlier $35 per share. In a filing to the US SEC on Monday, Cooper said Apollo representatives had informed it that the Indian firm wanted a price renegotiation. The price reduction suggested was far more than the $2.50 reduction it had earlier proposed, and at one point referencing “$8 or $9” per share, Cooper said.

Assuming a cut of $9 to $26/share, the deal size will be lower at $1.7 billion compared with the earlier $2.5 billion. It would also be lower than the current market cap of Cooper Tire of $1.93 billion, given the current share price of $29.51 on the New York Stock Exchange.

Apollo said in a statement on Monday: “Cooper has acknowledged to Apollo that some price reduction is warranted. The issue now is by how much.” Disputing that it has agreed to a price cut, Cooper Tire informed the US securities regulator that Apollo has requested a cut by as much as $9 per share, from the original $35 payable to Cooper shareholders in the initial agreement.

However, Apollo might yet walk out of the deal if trouble at the China unit – a 65:35 JV between Cooper and a local Chinese firm – is not resolved. Moreover, a US arbitrator has ruled that the sale of two units can’t go through without an agreement with the workers’ union. The problems in both China and the US came to the fore after Cooper shareholders approved the deal on September 30.

Chances of the deal not going through or being done at a significantly lower price pushed up the Apollo stock, which gained 5% on the BSE to R69.80 on Monday. On June 13, the day after the deal was announced the stock had crashed 25%.

Between June 12 and October 7 this year, the stock is still down by 22.18%.

The tiff between the two sides came into the open after Apollo came down hard on Cooper for filing a complaint in a US court on Friday seeking “timely” closure of the deal. It called Cooper’s move a “diversionary smokescreen or an

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