Apollo Tyres Ltd. denied having “buyer’s remorse” in a proposed $2.5 billion buyout of Cooper Tire & Rubber Co. and in a new court filing disputed the meaning of a potentially deal-scuttling “material adverse effect.”
Cooper, based in Findlay, Ohio, said June 12 it would be bought by Gurgaon, India-based Apollo for an agreed-upon $35 a share. When Apollo failed to close the deal as scheduled Oct. 4, Cooper sued in Delaware Chancery Court to enforce the buyout and Apollo suggested a price reduction of as much as $9 a share.
“Almost immediately after the merger agreement was announced, Apollo showed signs of buyer’s remorse,” Cooper claimed in its complaint. “Analysts immediately criticized Apollo for agreeing to take on too much debt for the transaction, and having overpaid.”
Apollo responded in a filing made public today, saying, “This is not a case of buyer’s remorse. Apollo has long seen the strength of the strategic fit between Apollo and Cooper. It still sees that fit, and it is committed to acquiring Cooper.”
Apollo is allegedly trying to get a lower price by dragging its feet in negotiating an agreement with United Steelworkers of America unions, Cooper contends in court papers, and must deal with a strike involving a Cooper joint venture with China’s Chengshan Group Co.
In its complaint, Cooper contends Apollo agreed to use its “reasonable best efforts” to complete the transaction or pay a $112.5 million “reverse breakup fee” to walk away.
The parties have agreed to hold a trial next month on the transaction, which would make Cooper part of the world’s seventh-largest tire company. The trial will be from Nov. 5 to Nov. 7 before Chancery Judge Sam Glasscock III, according to court papers.
One element in the merger contract that might free Apollo from its purchase obligation would be a material adverse effect -- something that alters the value of Cooper, according to court papers. Apollo had agreed such effects wouldn’t include disputes with Cooper’s labor unions or partners, including Chengshan, Cooper contends.
Apollo questions that statement, saying Cooper is presenting “selective and incomplete references to the merger agreement,” and “Cooper’s representations and warranties are not true and correct in all respects,” which could trigger the material adverse effect clause.
“Under the merger agreement, Cooper promised to do a number of things that it has not done,” including providing complete financial reports, exercising control over its Chinese operations and facilitating agreements with United Steelworkers, Apollo contends.
“The downward revision to projected financial results by Cooper continues unabated,” Apollo contends in today’s filing. “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.”
Glasscock granted the case fast-track status Oct. 9 in a telephone hearing from Georgetown, Delaware.
The case is Cooper Tire v. Apollo, CA8980, Delaware Chancery Court (Wilmington).