Funding for Apollo Tyres Ltd's $2.5 billion bid for U.S.-based Cooper Tire & Rubber Co is in jeopardy unless the deal price is cut to reflect the risk of higher costs stemming from labour issues, sources with direct knowledge of the matter said.
The Indian tyre-maker has lined up funding from Deutsche Bank, Goldman Sachs, Morgan Stanley and Standard Chartered Plc. But its lenders have grown increasingly jittery as obstacles to the deal's closure pile up, the sources said, adding that the banks are unlikely to unlock any funding without a concession on price.
Apollo, concerned that labour opposition at Cooper could potentially bump up costs after the acquisition, has asked for a price cut. The deal is also plagued by a dispute between the U.S. tyre maker and its joint venture partner in China.
"Financing would be tricky if the price cut demand is not met," said a source with direct knowledge of the situation. "The credit quality has changed because of these issues."
All the sources declined to be identified due to the sensitivity of the matter.
While debt-funded overseas acquisitions from India are not rare, Apollo's proposal is unusual because the target is much bigger. Cooper's market value is three times Apollo's.
Deutsche Bank, Goldman Sachs, Morgan Stanley and Standard Chartered declined to comment.
Apollo, 43 percent-owned by the New Delhi-based Kanwar family, has sought a price cut of more than $2.50 per share from the agreed $35 per share, according to Cooper.
Cooper has said a reduction is not warranted and blames Apollo for trying to "find an escape hatch from the deal," which, if completed, would give it access to China and the United States, the world's two biggest automotive markets.
Apollo declined to comment. Cooper also declined to comment and referred to its Monday statement in which it said that a reduction in offer price was not warranted.
The price dispute became public late last week when Cooper filed a lawsuit in a U.S. court asking Apollo to close the deal "expeditiously."
At the heart of the disagreement are labour issues in the United States and in China, where workers at Cooper's majority-owned joint venture have been on strike against the deal for three months. Chengshan Group, Cooper's Chinese partner, has filed a lawsuit seeking to dissolve their joint venture.
Cooper does not disclose revenue from the Chinese joint venture but says it is a "significant"