FINDLAY, Ohio—Six months of disputes and court battles resulted in the not-so-surprising announcement by Cooper Tire & Rubber Co. on Dec. 30 that it had terminated its merger agreement with India's Apollo Tyres Ltd.
Cooper's move came a day before the merger pact's deadline for Apollo to terminate the agreement if the parties had not concluded the negotiated terms satisfactorily.
"It is time to move our business forward," said Roy Armes, Cooper chairman, CEO and president. "While the strategic rationale for a business combination with Apollo is compelling, it is clear that the merger agreement both companies signed on June 12 will not be consummated by Apollo, and we have been notified that financing for the transaction is no longer available. The right thing for Cooper now is to focus on continuing to build our business."
Apollo responded that it "is disappointed that Cooper has prematurely attempted to terminate our merger agreement.
"While Cooper's lack of control over its largest subsidiary and inability to meet its legal and contractual financial reporting obligations has considerably complicated the situation, Apollo has made exhaustive efforts to find a sensible way forward over the last several months. However, Cooper has been unwilling to work constructively to complete a transaction that would have created value for both companies.
"Cooper's actions leave Apollo no choice but to pursue legal remedies for Cooper's detrimental conduct."
Since signing the merger plan, the tire makers have been embroiled in a court battle in the Delaware Chancery Court, accusing each other of not fulfilling terms of the agreement.
One of the stumbling blocks has been securing financial information from Cooper's joint venture, Cooper Chengshan Tire in Rong-cheng, China. Cooper owns 65 percent of CCT, with China's Chengshan Group holding the rest.
Cooper said striking workers at the Cooper Chengshan factory, backed by the minority owners, Chengshan Group, were refusing to build any Cooper-brand tires and have rebuffed Cooper efforts to enter the factory. Management there also was blocking Cooper's access to financial statements and has stopped entering financial data into accounting systems to which Cooper has access.
"The issues at CCT were driven by the merger agreement, and with the agreement now terminated, Cooper is working independently to restore normal operations at CCT, including obtaining the information needed for Cooper to resume regular financial reporting as soon as possible. Once the situation at CCT is resolved and regular financial reporting has resumed, Cooper will be in a position to address additional options for the deployment of capital targeted at returning value for our stockholders," Armes said.
Cooper will continue to pursue legal claims against Apollo. The firm claims the agreement's $50 million fee against Cooper, if Cooper terminates the agreement, doesn't apply. However, it will pursue the $112.5 million termination fee against Apollo along with other damages.
Cooper is ranked by Rubber & Plastics News as the 11th largest tire maker worldwide while Gurgaon, India-based Apollo is ranked 16th. The $2.5 billion deal would have created an entity with about $6.6 billion in annual sales and a No. 7 spot in the global tire maker ranking.
However, the events that transpired following announcement of the agreement seemed to serve as harbingers of the eventual termination:
• More than 5,000 workers at the CCT facility went on strike to protest the Apollo takeover of Cooper, according to China's Xinsua state news agency. Union leaders reportedly were trying to block the transaction from taking place because they didn't believe Apollo could repay the debt it will take on to finance the acquisition. That in turn could put the workers' jobs and pay in jeopardy.
• The United Steelworkers union representing workers at Cooper's Texar-kana, Ark., and Findlay plants filed a grievance on Aug. 1 alleging that Cooper had violated the successorship provisions of the collective bargaining agreement applicable to each plant by entering into the merger agreement.
• On Oct. 4, just four days after Cooper's shareholders approved Apollo's $35 per share offer, Cooper filed suit in Delaware Chancery Court to compel Apollo to "expeditiously" close the deal.
In the suit Cooper accused Apollo of attempting to renegotiate or even torpedo the merger pact by "seeking to delay an agreement" with the USW and to roll back its $35 per share offer by at least $2.50 a share and perhaps as much as $9 a share,
Apollo claimed that arbitrating the contracts at the two U.S. plants would involve making "material concessions" to the USW that would necessitate the need for financing or financial concessions in the terms of the deal with Cooper, and that Cooper "misrepresented its management and control" of the CCT.
Apollo also accused Cooper of "reckless hopefulness, bad faith or worse" in its financial forecasting for the 2013 fiscal year.