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Cooper Tire has alleged in the US court that the Kanwar family of Apollo Tyres was suffering from “buyer’s remorse” and was looking for an “escape hatch” to walk away from the $2.5 billion takeover deal as soon as Apollo’s stock tanked by 39% after the deal was announced in June this year.
In a lawsuit filed with the Delaware courtt, Cooper Tire said as a result of the market’s adverse reaction to the merger, and the disruption at Chinese plants, Apollo began looking for other ways to avoid or at least delay the transaction and that included delaying any wage agreement with the US based unions.
It said that several days before the agreed-upon August 30 deadline for Cooper to file its definitive proxy statement with the US market regulator, SEC and mail it to Cooper stockholders, Apollo asked Cooper to put those actions on hold. Cooper, however, declined to throw the deal off its agreed-upon track and went ahead with the filing of statements.
Then, on September 5, after Cooper had mailed the proxy statement and two days after Cooper informed Apollo that the 20-day “marketing period” under the merger agreement had begun, Apollo’s financial advisor conveyed to Cooper a request by Apollo to delay the scheduled October 4 closing.
On September 13, the USW, which represents employees at Cooper plants in Findlay, Ohio and Texarkana, Arkansas, had filed grievances alleging that Cooper violated the successorship provisions of the collective bargaining agreements for each of those plants by entering into the merger agreement. As with China operations, Apollo was heavily involved in Cooper’s strategy and negotiations with respect to the USW dispute. Cooper (with Apollo’s knowledge and consent) and the USW agreed to binding arbitration of the dispute, Cooper said.
And on September 13, 2013, the arbitrator ruled in favor of the USW, and ordered Cooper not to sell or transfer the Texarkana and Findlay plants—i.e., not to close the merger—unless and until the USW entered into new agreements with Apollo that recognize the USW as the bargaining agent.
Immediately after the USW arbitration decision, Apollo took the position that the decision rendered the required information that Cooper had previously delivered to Apollo not compliant, and that the marketing period therefore would have to start over once a new agreement with the Union was reached.
Apollo also took the position that it could not feasibly market the debt financing for the merger unless the USW issue was resolved.
That, Cooper Tires says, is irrelevant, as the financing documents provide for a bridge-to-bond facility that requires Apollo to draw on a bridge loan if it could not accomplish a bond offering. "Apollo was simply looking for excuses to prevent a closing," Cooper said in its complaint to the court.
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The timeline of Apollo-Cooper Tire deal
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June 12: Apollo Tyres announces $2.5 bn takeover of Cooper Tire
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June 13: Apollo Tyres shares fall 39% on BSE
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June 21: Cooper Tire's Chinese workers protest against deal, strike work
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September 5: Apollo asks Cooper to delay October 4th closing of deal
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September 13: US arbitration rules in faour of union, stays merger
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September 17: Apollo seeks re-negotiation of deal, seeks $2.5 a share discount
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September 26: Apollo fails to reach agreement with unions
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October 3: Apollo wants $8-9 a share discount to offer price of $35 a share
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October 4: Closing of deal fails to take place as talks with USW fail |
During the meetings with USW, Apollo made virtually no effort to reach an agreement with the USW. The USW, Cooper says, left the meetings frustrated by Apollo’s unwillingness to engage in any substantive dialogue.
Apollo took a position with Cooper that any agreement with the USW that had a financial impact would require a renegotiation of the $35-per-share consideration for the merger. On the afternoon of September 20, Apollo’s representatives left the bargaining table, and claimed that, for scheduling reasons, they would be unable to resume negotiations until September 30, which was the date that Cooper had scheduled to conduct its stockholder meeting regarding the merger.
Apollo’s counsel also took the position with Cooper that, contrary to its contractual duty to use reasonable best efforts to consummate the merger in the most expeditious manner possible, Apollo was under no obligation to reach an agreement with the USW until December 31, 2013, which was the outside “drop dead” date after which a non-breaching party is free to terminate the merger agreement without penalty.
By the evening of September 26, after Cooper learned that Apollo had put the negotiations with the USW on hold yet again until the following week, it became apparent beyond doubt that Apollo was not proceeding in good faith, much less in the most expeditious manner possible, but was instead purposely attempting to draw out the negotiations in order to avoid an agreement with the USW and prevent the deal from closing.
The next morning, Apollo’s Vice Chairman told Cooper’s CEO during a telephone conversation, in substance, that if Cooper were to proceed with its stockholder meeting at $35 per share, then the transaction would not close.
Thereafter, Apollo sent Cooper—for the first time—a proposal for reaching an accord with the USW, but told Cooper that the proposal was contingent on Cooper’s agreement to reduce the merger price by $2.50 per share.
Unwilling to accede to Apollo’s thinly-veiled threat to hold up closing unless Cooper were to agree to a price reduction, Cooper demanded that Apollo immediately resume negotiations with the USW to close the deal on October 4. Apollo, however, did not change its course of conduct, and made no reasonable effort to act expeditiously. Instead, it waited until October 1 to resume negotiations with the USW and again barred Cooper’s representatives from attending those negotiations.
Cooper says Apollo’s intentional failure to reach an agreement with the USW is nothing more than a bad-faith pretext for avoiding consummation of the merger. Apollo’s conduct has nothing to do with the USW agreements, and everything to do with China and its own buyer’s remorse.
Apollo knows that, if the China disruption continues past mid-November, then Cooper may not be able to provide Apollo’s lenders with certain financial statements for the third quarter of 2013, which is a condition to the lenders’ obligation to fund the financing required for closing the merger.
"If those financial statements cannot be provided in mid-November, then the lenders may refuse to fund. Thus, in purposely obstructing an agreement with the USW, Apollo is attempting to delay the closing long enough so that it can shift the risk of resolving the China disruption away from itself, and foist that risk entirely on Cooper," it said.
And, in the meantime, Apollo is seeking to use that perceived leverage to extract a price decrease from Cooper, or to otherwise escape what it now views as a bad bargain.
On September 30, 2013, Cooper’s stockholders approved the deal overwhelmingly. But on October 3, Apollo’s representatives again informed Cooper that Apollo wanted a price renegotiation, this time suggesting a price reduction far greater than the $2.50 reduction it had earlier proposed, and at one point referencing “$8 or $9” per share or upto $625 million cut in the deal size.
By October 4, Apollo had not reached any agreement with the USW, and the closing did not occur as scheduled.
Under the circumstances, Cooper has been left with no choice but to seek the Court’s help to close the transaction. The matter is now pending.
