Cooper Tire & Rubber Co.’s chief executive officer told a judge he was “offended” when Apollo Tyres Ltd. demanded to cut the purchase price for the U.S.’s fourth-largest tiremaker after agreeing to pay $2.5 billion.
Delaware Chancery Court Judge Sam Glasscock III in Wilmington is considering whether Apollo should be forced to complete the $35-a-share buyout after being accused by Cooper of having second thoughts about the deal. The judge granted fast-track status to the case, which went to trial today.
Roy V. Armes, Cooper’s CEO, testified that after Apollo first pushed to cut $2.50 a share from the negotiated price to cover the cost of $125 million in concessions to the United Steelworkers’ union, “I was offended, frankly.” Armes added that he ordered Cooper employees to continue sharing financial information with Apollo in hopes of completing the deal.
“There’s still some very good merit to the combined company,” he said.
Talks to complete the largest acquisition by an Indian company in North America soured last month amid opposition from U.S. and Chinese workers. Apollo, based in Gurgaon, India, sought to cut its offer by as much as $9 a share, citing labor issues.
On Oct. 4, the day Apollo’s purchase was originally scheduled to be completed, Findlay, Ohio-based Cooper sued, alleging Apollo was intentionally delaying the deal.
Armes testified today he met repeatedly with Neeraj Kanwar, Apollo’s vice chairman, while negotiating the buyout and made it clear that Cooper officials wanted a quick closing to avoid financing problems.
“I think there’s some buyer’s remorse there, but I don’t know how they felt personally,” Armes told Glasscock.
In pretrial filings, Apollo denied having second thoughts about the deal, saying it still wants to complete the acquisition 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 value, since the contract was signed, which could kill the deal.
Cooper maintains that it has complied with the sale agreement, even amid troubled negotiations with the United Steelworkers and a Chinese unit.
Cooper said last week that it reached a deal with the United Steelworkers, 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.
Glasscock said today the agreements, which expire on Nov. 18, won’t be part of the case before him.
Apollo, which snubbed Cooper’s demand to sign off on the union agreements by Nov. 4, in a letter to Glasscock accused Cooper of taking extraordinary steps to “induce” the union into the agreement before the trial.
In addition to the labor issues, Apollo points to a lack of current financial data from Cooper and to ambiguous projections that suggest serious future losses.
“Cooper’s current third-quarter forecast for 2013 is $3.4 billion in revenue 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,” Apollo said in court papers.
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.
For Cooper to win, the court must find that “disruption at Cooper’s joint venture” in China “is carved-out from being a material adverse effect” and that Apollo didn’t use its best efforts with the United Steelworkers, according to an Oct. 30 overview of the case by Churchill Capital Research.
Apollo said in court papers filed Nov. 1 that it worked diligently to reach an agreement with the union and its efforts “exceeded any possible standard that could be applied under the merger agreement.”
Cooper’s China venture, called Cooper Chengshan (Shandong) Tire, operates the company’s biggest manufacturing site, according to the venture’s union. Workers there stopped producing Cooper tires July 13 to protest the Apollo deal.
Chinese executives were upset by Cooper’s planned sale to Apollo and tried to get together a competing bid, Armes said. They abandoned that plan and told Cooper officials they were considering an effort to top Apollo’s offer, he said.
In the meantime, Cooper officials have been barred from the factory and “financial data is not being uploaded like normal” to the U.S. tiremaker’s computers, Armes said. As a result, Cooper may struggle to release third-quarter financial statements, he said.
“It’s a big problem. This disruption has caused problems in getting financial information,” Armes said under cross-examination by John Hardiman, one of Apollo’s lawyers. “But it’s all been brought on by this acquisition.”
James P. Dougherty, a lawyer with the Cleveland office of Jones Day who specializes in mergers and acquisitions, told Glasscock today that the Cooper buyout agreement was structured in a way that required Apollo to go through with the deal despite the Chinese labor problems.
The agreement was written to ensure that Cooper “would not bear the risk of adverse reaction to the deal” by either U.S. unions or the Chinese venture partners, Dougherty said.
The case is Cooper Tire v. Apollo, CA8980, Delaware Chancery Court (Wilmington).