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Apollo Tyres isn’t taking flak for its $2.5-billion takeover of Cooper Tire from its shareholders alone. The Cooper Avon Tyres Pension Trust has alleged the acquisition of Cooper Tire would be detrimental to pension plans. They have approached the pension regulator seeking higher payments to the fund.
The UK Pension Trustee has told Apollo unless it receives assurances, including special contributions, an acceleration of recovery contributions or provision of guarantees and security, it would exercise its moral hazard powers.
Moral hazard power relates to a contribution notice or a financial support direction the regulator issues to pay a set sum to the pension scheme. A financial support direction requires a target to put forward a proposal of longer-term financial support for the scheme. This support could be in different forms — cash, a guarantee or other security arrangement. Any proposal requires the regulator’s approval before being put in place. The regulator can only issue a contribution notice or a financial support direction when it believes it is reasonable to impose the liability.
In a communication to Cooper dated October 4, Apollo had said it had sought, but not yet received, the correspondence between Cooper and the UK Pension Trustee. It added it was “very concerned”, owing to the tone of the most recent letter through which Cooper had once again sought to conceal the true state of affairs confronting the company from the parent parties.
The letter had also alleged the American company’s financial performance forecast company deteriorated consistently within a few weeks of the $2.5-billion deal announcement in June. Based on court documents, Apollo says on September 17, Cooper had provided a new account of its financial situation, forecasting a 33 per cent decline in operating profit for September, compared to the forecast delivered only days earlier. “Now, we have just received yet another story of the company’s third quarter forecast and this one reveals the most troubling shortfall yet — $3.4 billion in revenues and $257 million in operating profit for 2013. In other words, 2013 revenues and operating profit, as projected in July, were 25 per cent and 48 per cent higher than your current estimates,” said an Apollo letter dated October 4 sent to Cooper.
On Monday, the Apollo stock closed at Rs 66.45 on BSE, down 0.75 per cent. The stock has lost a quarter of its value since the company announced the deal with Cooper Tire.
