Barely few hours before the closure of $ 2.3 billion (Rs 14,500 crore) merger deal deadline between the US tyre manufacturer, Cooper Tyre and Rubber and Indian tyre major, Apollo Tyres, the former has firmed up its mind to terminate the merger agreement, quoting a Cooper Tyre statement yesterday, an Economic Times report said.
The statement, according to the report, had notified that it had failed to find financing for the transaction, while Apollo Tyres expressed its disappointment over the US tyre maker prematurely attempting to spike the deal.
Roy Armes, CEO and President of Cooper Tyre said in the statement: “It is time to move our business forward. While the strategic rationale for a business combination with the Indian tyre manufacturer Apollo is compelling, it is clear that the merger agreement both entities inked on June 12 this year will not be consummated by Apollo and we have been notified that financing for the transaction is no longer available. Therefore, the right thing for us now is to focus on continuing to build our business”.
Quoting experts as saying, the report said that for Apollo to conclude financing of the deal, it was of paramount importance to know the consolidated financial details of Cooper Tyre including that of its Chinese joint venture, which people close to the development said, the US tyre maker was not able to submit to Apollo Tyres.
Quoting Apollo source, the report said that the tyre maker was left with no other option, but to pursue legal actions against Cooper Tyre. What is more, Cooper’s lack of control over its largest subsidiary and contractual financial reporting obligations has considerably exacerbated the situation, Apollo claimed.
“Apollo has made all that it can 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 and their shareholders. Furthermore, Cooper’s actions has left Apollo no choice but to pursue legal remedies for Cooper’s detrimental conduct,” citing an Apollo statement, concurred the report.
Known as the biggest merger and acquisitions deal in the annals of Indian automotive arena, even bigger than the acquisition of British Jaguar Land Rover by Tata Motors, was perennially under the threat of a collapse, due to major differences betweenthe two entities. The inevitable has happened now with the deal falling apart.
A gamut of factors such as renegotiation with the workers of Cooper Tyre, along with stiff resistance from its Chinese alliance partner and the non-availability of financial details of the Chinese joint venture company of Cooper Chenghan Tyre (CCT) were considered as few of the major stumbling blocks for completing the deal, noted the report.
It may be recalled that the Indian tyre maker, had plans to acquire 100 percent stake in Cooper Tyre for Rs 14,500 crore on June 12, 2013. As part of the negotiation, Apollo Tyres would have been liable to pay $ 112.5 million, (Rs 690 crore) in case if it decides to withdraw, while Cooper would have had to pay a termination penalty of $ 50 million if it called it quits. On the other hand, if the deal would have stretched beyond December 31, 2013 none of the two entities would be liable to pay anything, the report continued.
On the question of who is liable to pay for damages on the deal not coming through, Cooper in an investor conference call, was quoted to have said by the ET report: ‘It does not believe that the $ 50 million termination fee applies. The company is pursuing the reverse termination fees of $ 112.5 million from Apollo Tyres for not completing the deal’. ‘Cooper believes Apollo has breached the merger agreement, and we will continue to pursue the legal steps necessary to protect the interests of our company and our stockholders,’ Armes added.
Cooper had dragged Apollo Tyres to court for not completing the deal by October 4 this year. The Delaware lower court of Chancery had ruled in favour of Apollo Tyres, stating that it had not breached its obligation under the deal. Delaware’s Supreme Court was slated to hear arguments mid-December but it admitted that the appeal had been ‘improvidently accepted’, which meant that the case shouldn’t have been heard by the court at all, added the report.