Cooper Trial in $2.5 Billion Apollo Tyres Deal Set Today

Cooper Tire & Rubber Co. (CTB)’s dispute with India’s Apollo Tyres Ltd. (APTY) over a $2.5 billion buyout goes before a judge in a non-jury trial set to begin today in Delaware Chancery Court with no compromise in sight.

Judge Sam Glasscock III, who granted fast-track status to the case being heard in Wilmington, must decide whether to grant Cooper’s request and force Apollo to consent to a new labor agreement reached last week. The agreement renders Apollo’s objections to the transaction moot, Cooper said in court papers. Apollo called the labor deal “illusory” and accused Cooper of attempting to “hijack” the case.

Talks to complete the largest acquisition by an Indian company in North America soured in October amid opposition from U.S. and Chinese workers. Apollo, based in Gurgaon, India, sought to cut its $35-a-share offer by as much as $9, citing the labor issues. On Oct. 4, the day Apollo’s purchase was originally scheduled to close, Findlay, Ohio-based Cooper sued, alleging Apollo was intentionally delaying completion.

In pretrial filings, Apollo denies it is suffering from “buyer’s remorse,” contending it still wants to close and Cooper hasn’t lived up to the contract. Central to Apollo’s defense is the possibility of a “material adverse effect” or significant change in Cooper’s worth since the contract was signed -- which could kill the deal.

Cooper maintains it has complied with the sale agreement, despite troubling negotiations with the United Steelworkers union and a recalcitrant Chinese unit, and claims Apollo is angling for a better bargain.

Deal Reached

Cooper said last week that it reached a deal with the United Steelworkers union, thus eliminating Apollo’s claims of an adverse change. Cooper hasn’t disclosed details of the tentative agreements with unions in Findlay and Texarkana, Arkansas, pending review and consent by Apollo. The agreements expire on Nov. 18.

Apollo, which snubbed Cooper’s demand to sign off on the union agreement by Nov. 4, accused Cooper of taking extraordinary steps in order to “induce” the union into the agreement before the trial, the company said in a letter to Glasscock last week.

In addition to the labor problems, Apollo also points to a lack of current financial data from Cooper, and to ambiguous projections that suggest serious future losses.

‘Staggering Change’

In court papers, Apollo said in October that “Cooper’s current third-quarter forecast for 2013 is $3.4 billion in revenues and $257 million in operating profit -- a staggering change in that forecasts provided by Cooper in July reflected results that were 25 percent and 48 percent higher, respectively.”

In its complaint, Cooper contends Apollo agreed to use its “reasonable best efforts” to complete the transaction or pay a $112.5 million fee to walk away from the deal.

For Cooper to win, the court in part must find that “disruption at Cooper’s joint venture” in China “is carved-out from being a material adverse effect” and that Apollo “did not use” its best efforts with the United Steelworkers, according to an Oct. 30 “Delaware court case overview” by Churchill Capital Research.

Apollo said in court papers filed Nov. 1 that it worked diligently to reach an agreement with the United Steelworkers and its efforts “exceeded any possible standard that could be applied under the merger agreement.”

Accept Problems

The litigation is Cooper’s attempt to force Apollo to accept the problems at its Chinese subsidiary which go beyond a simple strike or work stoppage, the company said in the filing.

Cooper’s China venture, called Cooper Chengshan (Shandong) Tire, operates Cooper’s biggest manufacturing facility worldwide, according to Cooper Chengshan’s union. Workers at the factory stopped producing Cooper tires July 13 in protest of the Apollo deal. Also that month, Chinese partner Chengshan Group Co. filed a lawsuit alleging that the buyout would undermine its operations. Cooper has said the litigation lacks merit.

The case is Cooper Tire v. Apollo, CA8980, Delaware Chancery Court (Wilmington).

To contact the reporters on this story: Phil Milford in Wilmington, Delaware, at pmilford@bloomberg.net; Sophia Pearson in federal court in Philadelphia at

spearson3@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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