Apollo and Cooper will fight it out in court over failed merger deal

Investors heave a sigh of relief.

By Deepak Chitnis

WASHINGTON, DC: Just one day after a proposed merger between US-based tire manufacturer Cooper Tire & Rubber Company and Mumbai-based Apollo Tyres Ltd. fell through, shares of the latter closed at their highest level in 22 years, giving many investors reason to breathe easy as the Indian company’s financial future looks more secure.

The Indian tire giant’s stock rose nearly 12% to end the final day of 2013 at Rs. 113. The noticeable uptick in share price is seen by many as an indicator that investors did not have much faith in the merger that failed on December 30, which many believe could have spelled doom for Apollo had it gone through.

Meanwhile, details about why the lucrative merger, which was valued at an estimated $2.5 billion, died in the water are beginning to surface.

Issues regarding Apollo’s acquisition of Cooper had troubled investors for several months, with many believing that the Indian tire company didn’t have the financials to back up such a bold purchase. Several estimates foretold doom for Apollo if it went through with the deal, saying that the merger would force Apollo to take on a catastrophic amount of debt – almost $3 billion, nine times what the company’s debt level is already at.

Apollo apparently also tried to renege on the buying price it had negotiated with Cooper. In June, an agreement was reached to purchase Cooper for $35 per share; in October, however, Apollo took Cooper to court to get that number reduced to $25 per share. Then $10 per share drop in price would have taken the $2.5 billion deal down to less than $1.8 billion, and was seen by industry insiders as a sign of Apollo getting cold feet about the price and trying to get the best deal they could for their sizeable investment.

It now appears that although the deal may have dissolved, the relationship between the two companies has not. Apollo and Cooper may be seeing each other in 2014 – in court.

As a result of the termination of the merger deal, Apollo has demanded a $50 million fee from Cooper as restitution. Cooper, according to a report put out by Bloomberg, has countered with a $112.5 million reverse termination fee. Each party is saying the other is primarily culpable for the deal falling through, which will likely lead to a litigious battle in the coming months.

The case has already been filed in Delaware Chancery Court, and lawyers representing Cooper have taken the case to the US Securities and Exchange Commission (SEC). The dissolution and subsequent fallout from this business transaction could have implications on the already strained US-India relationship, which has suffered through one of its most problematic years in 2013.

Bilateral business ties has been reiterated time and time again as a key component of the US-India relationship, but it remains to be seen just how heated things will get; like an ugly divorce, Apollo and Cooper will have to settle up financially before both parties can completely move on.

Nevertheless, both Apollo and Cooper are on the up-and-up, fiscally speaking, and project reasonably strong profits for the end of 2013 and beginning of 2014. But the merger’s death, and allegedly duplicitous behind-the-scenes negotiations, bode ill for other Indian companies trying to do business with American firms.

To contact the author, email to deepakchitnis@americanbazaaronline.com

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