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Cooper, Apollo continue merger battle in court

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AKRON—The proposed marriage of Cooper Tire & Rubber Co. and Apollo Tyres Ltd. hasn't even been consummated and the two sides already are fighting in court.

Four days after Cooper's shareholders approved Apollo's $35 per share offer to buy the company, Cooper filed suit on Oct. 4 to compel Apollo to close the pending $2.5 billion acquisition. Apollo then rebutted Cooper's charges that the Indian company is trying to renegotiate or even kill the deal.

Cooper's complaint in the Delaware Chancery Court accuses Apollo of seeking to delay an agreement with the United Steelworkers union at two Cooper U.S. plants. An arbitrator on Sept. 13 ordered Apollo to cut a deal with the USW after the union claimed the sale to Apollo would violate successorship provisions of the labor organization's contracts with Cooper.

Apollo, in its court response, said it is working to reach an agreement with the union.

The manufacturer claims arbitrating the contracts at the two plants would involve making "material concessions" to the USW that would require the need for financing or financial concessions in the terms of the deal with Cooper. The company also said Cooper "misrepresented its management and control" of the Cooper Chengshan (Shandong) Tire Co. Ltd. subsidiary in China to Apollo and to its own shareholders.

"Apollo finds it implausible that Cooper, having failed to resolve these issues for several months, would realistically expect to force Apollo to concede material issues on Cooper's accelerated timeline," the company said.

Apollo is seeking to roll back its $35 per share offer by at least $2.50 a share and perhaps as much as $9 a share, Cooper claims in its suit.

The Delaware Chancery Court has agreed to hear the case in early November, Cooper said.

Apollo also accuses Cooper of "reckless hopefulness, bad faith or worse" in its financial forecasting for the current fiscal year. According to Apollo, Cooper forecast it would report $380 million in operating income this year on sales of $4.3 billion. It revised these figures down-ward three times over seven weeks, to sales of $3.4 billion and operating income of $257 million.

The missed forecasts "have eroded any shred of credibility (Cooper) has with us," according to a letter to Cooper signed by Apollo's Vishal Mittal.

Roy Armes, Cooper chairman, CEO and president, said the firm is obligated to protect the rights of its shareholders, and that it has met the conditions for closing the deal.

Since peaking at $34.80 a share in mid-June, Cooper's stock price slipped back to less than $26 a share on Oct. 17. Apollo's shares fell about 27 percent on the Bombay Stock Exchange since the deal was announced in June.

Cooper also is asking the court to award it monetary damages from Apollo. It filed the suit in Delaware because both it and defendant Apollo Acquisition Corp.—created by Apollo Tyres to effect the combination—are Delaware corporations.

If Apollo backs out of acquisition, it would face a penalty of $112.5 million, according to Cooper. However, if the deal isn't concluded by Dec. 31, neither company would face a penalty.

The parties face a key deadline of Nov. 15, according to financial community sources. They said on that date, the banks arranging the financing for Apollo want complete financial accounting from the sides to continue with the planned launch of securities.

By delaying resolving the arbitration with the USW, Apollo is breaching the merger agreement, Cooper claims. Apollo said it still believes a merger is strategically compelling.

Apollo said it has actuarial advisers evaluating the financial impact of the USW's requests, some of which it accuses Cooper of having been unwilling to provide in the three months since Cooper and Apollo announced their intent to merge and the opening of arbitration.

In its suit, Cooper accuses Apollo of meeting with USW representatives on several occasions without anyone from Cooper present, in spite of requests by the USW to the contrary.

Additionally, Apollo said it has asked Cooper to confirm the Findlay, Ohio-based firm has sufficient control over and access to Cooper Chengshan (Shandong) Tire Co. Ltd. Apollo wants assurances that business—majority owned by Cooper—will deliver current consolidated financial information and auditors' comfort letters and that Cooper is in compliance with covenants and representations in the merger agreement.

To date, Apollo said, Cooper has been "unable or unwilling to provide these confirmations."

In addition, Apollo said Cooper's inability to access the facilities of its Chinese subsidiary, to determine what products this subsidiary is producing or to whom those products are being sold, to track or control how its funds are being spent or even to access operating or financial information, either physically or remotely, goes well beyond any typical work stoppage.

Cooper acknowledges workers at the Cooper Chengshan factory, backed by minority owner Chengshan Group, are refusing to build any Cooper-brand tires and won't let Cooper personnel enter the factory. Cooper admitted management at the plant is blocking the company's access to financial statements and has stopped entering financial data into accounting systems to which Cooper has access.

Apollo said it supports Cooper's efforts to establish control over Cooper Chengshan and assert its rights against its joint venture partner. However, the Indian tire maker said it can't be responsible "for Cooper's failures to do so," and the Indian tire maker and its financing banks are justified under the merger agreement to seek financial statements "in light of the significant and unanticipated costs that go well beyond those Apollo is obligated to bear under the merger agreement."

Apollo claims "Cooper has acknowledged ... that some price reduction is warranted. The issue now is by how much." Cooper disputes this claim.