<b>Driving force:</b> A peek into Onkar S Kanwar's life

A new biography of the industrialist recounts Apollo Tyres' aborted bid to acquire the US' Cooper Tires

THE MAN BEHIND THE WHEEL 

How Onkar S Kanwar created a global giant

Author: Tim Bouquet

Publisher: Rupa 

Pages: 262 Price: Rs 595

It was a red-letter day, 13 June 2013, for Onkar Singh Kanwar. ‘At age 70, Onkar Kanwar has sealed the biggest deal of his business career,’ Forbes magazine wrote in a feature entitled “The Quiet Rise of Onkar Kanwar — The New Owner of Cooper Tire”.

Apollo had indeed signed the biggest acquisition in its history. The marriage with Cooper would cost Apollo $2.5 billion, making the deal even bigger than Tata’s $2.3 billion takeover of Jaguar and Land Rover in 2008 and the largest overseas automotive acquisition by an Indian company. The vision had been Onkar s. His admiration for Cooper went way back to when he had first asked it for technological support. ‘They were making a lot of money. I told my people to study this company.’ 

They (Kanwar and his son, Neeraj) had booked their flights to Ohio to complete what they thought would be the final formalities with Cooper. So sure were both parties that the deal was in the bag they had inserted a six-month closure clause. Everything would have to be finalized by 31 December 2013. 

A month before the Cooper deal was announced Neeraj Kanwar had flown to Beijing on 15 May to meet a fifty-seven-year-old Chinese businessman called Che Hongzhi. Known to all as ‘Chairman Che”, he was Chairman of the Chengshan Group, which employed 7,000 people in the city of Ronghcheng overlooking the Yellow Sea. 

The Chengshan Group also had a joint venture with Cooper Tire called Cooper Chengshan Tire Company (CCT). Cooper had a 65 per cent shareholding in the joint venture, which contributed about 25 per cent annually to its global sales turnover. 

Sitting on his 35 per cent, Chairman Che may have been a passive minority investor with no rights to participate in discussions about the sale of Cooper, but it turned out that Che posed a problem. He was not by nature a passive man.

Neeraj’s Beijing meeting with Chairman Che, which had been organized by Cooper, did not go smoothly. Neeraj did not speak Chinese and Che did not understand English and although they both had interpreters, discussions were understandably stilted and at arm’s length. ‘He listened patiently but he seemed distant,’ Neeraj says, ‘I told him that I would confirm in writing that the 5,000 jobs in CCT’s tyre factory were guaranteed and that we had plans to expand and upgrade the plant to produce truck radials.’

Che told Kanwar, ‘I have been a good son and the father is good. Now the father is divorcing me and the stepfather is coming in.’

Neeraj was slightly nonplussed by the riddle but after lunch and a toast to the future, Che said, “I don’t care who my stepfather is; someone needs to tell me who is looking after me.’” Neeraj Kanwar had been around the block enough times to know that this was code for some form of compensation should the deal with Apollo go through.

Back in the United States, Apollo’s due diligence carried on apace. What Neeraj did not discover until much later was that on 15 June, three days after Apollo had announced the Cooper acquisition, Chairman Che had flown to the United States and had himself bid $38 a share to buy Cooper, an offer that was $3 better than Apollo’s. Cooper had turned him down. 

Che Hongzhi returned to China empty-handed. According to Forbes magazine, ‘he was seething with anger’…

Sure enough, within days of the deal being announced, CCT’s workers went on strike in an attempt to derail the merger of Cooper and Apollo. In a statement Yue Chunxue, director of the Cooper Chengshan union branch, said, ‘we oppose this purchase because Apollo does not have sufficient [financial] strength’. Workers’ wages and benefits could not be guaranteed. He was concerned about ‘cultural problems with future Indian bosses’.

CCT was the most profitable factory of Cooper’s eight global plants, producing 35,000 tyres a day, and the Chinese market was the world’s largest. If it lost CCT the sale value of the entire Cooper Tire business would decrease markedly.

To try and find out what was really happening in China Apollo hired US corporate investigators Kroll. It produced a report that suggested Che Hongzhi himself had orchestrated the strike.

On 1 August 2013, a second obstacle flared up on the road to union in the shape of the powerful United Steel Workers (USW) union. It represented the employees at Cooper’s plants in Texarkana, Arkansas and Findlay, Ohio. It announced it was commencing arbitration alleging that under Cooper’s collective bargaining agreement, the USW had a right to require Apollo to negotiate a new contract with the union before the merger could be completed. 

Cooper had advised Apollo that no such right existed under the union contract and that Cooper would prevail in the arbitration so the parties resolved to fight the action. 

In the same month CCT workers went on an indefinite strike. Not only that, CCT management barred any Cooper staff from entering the plant or having access to financial figures. ‘CCT literally threw them out, as well as denying them access to the computers,’ says Neeraj. ‘But I still believed we could complete the Cooper transaction.’

In spite of his optimism, the clock towards a 31 December completion deadline was ticking ever faster while final agreement was heading just as quickly in the opposite direction. On 13 September, the arbitrator ruled that Apollo could not acquire Cooper until Apollo struck a new deal with the USW. 

Three days later Kanwar, Neeraj and Sunam Sarkar (executive director, president and chief business officer of Apollo) boarded a 2 a.m. flight from New Delhi to New York to meet Cooper’s executives and discuss the negotiating strategy they should adopt with the USW. Those negotiations opened in Nashville, Tennessee, where the union presented Apollo and Cooper with ten demands covering bonuses, bargaining rights and other issues. The meeting ran for two tortuous days.

It was clear to Apollo that the cost of a new labour agreement proposed by the USW would be much higher than envisaged and would have a major impact on Cooper’s valuation. ‘We reckoned that it would cost in the region of $125 million,’ Neeraj says. Cooper disagreed, putting the figure at nearer $10 million. 

Says Sarkar, ‘Cooper and its lawyers first said that Apollo should stand firm and reject the union demands until it dawned on them that Apollo would bear the entire costs of any new USW deal and that their shareholders would get the same amount of cash whether Apollo spent $10 million settling with the steel workers or $200 million. Their lawyer then aggressively started pushing us to agree to whatever the USW was asking for.’

Onkar Kanwar needed somebody to help him build bridges directly with the USW and Ohio politicians/ Who better than a former governor of Ohio, Richard ‘Dick’ Celeste (a former US ambassador to India)?

Celeste agreed to help the Kanwars who went to Ohio where he introduced them to USW officials. 

Kanwar also had meetings with Ohio’s two senators while Celeste ‘discussed the merger with the current Governor of Ohio, John Kasich, and some of his people who were all very positive’.

As Apollo and the USW edged closer it was clear to Neeraj that it would cost $150 million to settle. ‘I told Cooper we needed to revise the offer price, suggesting around  $2.50 a share reduction on our $35 per share offer.’

When Kanwar and his son, Neeraj (right), booked their flights to Ohio, they were confident that they were on their way to seal the final formalities with Cooper. Photo: Courtesy Rupa

According to Forbes India, Roy Armes (Cooper CEO, chairman and president) was furious. ‘I am being asked to pay for something, which I can’t even negotiate. I can go back to my board for a buck but two bucks fifty is a lot.’

It was another impasse. It was not the last. Because Chairman Che was refusing to let Cooper staff into the CCT plant to inspect the books and financial records, it was questionable whether the assurances required for the marketing phase of the Apollo-Cooper deal financing to begin would be forthcoming.

As the weeks rolled on Apollo was becoming concerned that Cooper had repeatedly revised down its consolidated revenues and operating profit forecasts for the 2013 fiscal year. It had done so five times since 21 July. 

The alarm bells were ringing all over Apollo Tyres. In a five-page, single-line-spaced letter to Cooper, Apollo accused Cooper of ‘reckless hopefulness, bad faith or worse’ in its financial forecasting. The repeated revisions were seriously impeding Apollo’s efforts to raise money to finance the takeover, Apollo argued. 

Then on Friday, 4 October 2013, Cooper filed litigation in the Delaware Chancery Court in the United States asking that Apollo ‘be required to expeditiously close the pending merger between the two tire companies in accordance with the terms of the definitive merger agreement’.

Cooper was accusing Apollo of buyer’s remorse and doing anything it could to wriggle free of the merger. Understandably the Kanwars were not at all happy with Cooper’s decision to go to court. In their view the litigation had no basis and the deal could still be done. ‘The entire Apollo team was surprised that Cooper took this action when they did,’ says Scott Miller (partner in Sullivan & Cromwell). After all, there were still two months to go before the deadline of 31 December. Normally you would keep working.’..

There was a pressing reason why Cooper wanted to force Apollo to conclude the merger quickly. It was still barred from its plant in China and if it could not provide updated financial information by 10 November, the deadline by which it had to file its third-quarter earnings with the US regulators, then Apollo could walk away from the deal without paying the $112 million break fee. ‘Cooper therefore, asks the Court to schedule this action for an expedited trial and resolution by 7 November 2013.’

On 14 October 2013, Apollo filed a counterclaim detailing what it believed to be Cooper’s failure to provide financial and other information under the merger agreement which was in no small way due to its apparent inability to exercise control over its Chinese subsidiary, Cooper Chengshan Tire. Cooper, it said, ‘had failed to meet its contractual obligations under the merger agreement’, and called for a ‘declaratory judgement that the conditions precedent to the closing of the merger have not been satisfied’. . .

Neeraj arrived home on Friday, 8 November, off a flight from Philadelphia and went straight to bed. He eventually woke up that evening. At around 9.30 p.m., he was in his sitting room enjoying a drink with his wife Simran when ‘suddenly I just burst out crying; all my emotions came out.’

Then his phone rang. It was Scott Miller of Sullivan & Cromwell. ‘Congratulations! You won the case!’
 

This excerpt from The Man Behind The Wheel: How Onkar S. Kanwar Created a Global Giant is reprinted by permission of Rupa Publications India