War of words: Apollo and Cooper respond to each other's claims

Bob Ulrich
Posted on October 7, 2013

On Friday, Cooper Tire & Rubber Co. filed a lawsuit against Apollo Tyres Ltd. and its subsidiaries. Cooper claimed Apollo was dragging its feet regarding the proposed acquisition of Cooper by Apollo.

Cooper asked the court to compel Apollo "to expeditiously close the pending merger between the two tire companies in accordance with the terms of the definitive merger agreement." Apollo, in an official response, denied the accusation

(To read about the initial give and take between the two companies, see
"Cooper sues Apollo for dragging its feet.")

Is the lawsuit unprecedented? Probably not. It certainly adds spice to the proposed acquisition, however.

Two days later, on Sunday, Oct. 6, 2013, the companies had more to say about the lawsuit. Following its initial response, Apollo issued a more definiitive statement -- very pointedly, I might add -- about the lawsuit's charges. Cooper then responded to Apollo's comments.

Here are their statements, unedited.

Apollo says:

"Apollo remains firmly of the belief that a merger with Cooper is compelling from a strategic perspective. Contrary to Cooper’s complaint, we have been working diligently to address significant post-announcement impediments.

“We continue to have committed financing from four major international banks and are ready to launch our financing, subject to reaching agreement with the USW, which is a requirement before Cooper can close under the September 13 arbitration ruling. Apollo has indicated to the USW in discussions over the past two weeks that Apollo is willing to make material concessions to the USW, subject to arranging for additional financing or financial concessions. Cooper had been unwilling to provide similar terms to the USW in negotiations over the three month period before its arbitration setback. Given the complex nature of certain of the USW’s requests, Apollo has engaged actuarial advisors to evaluate the financial impact of certain of the USW’s requests. Apollo finds it implausible that Cooper, having failed to resolve these issues for several months, would realistically expect to force Apollo to concede material issues on Cooper’s accelerated timeline.

“Additionally, Apollo has asked Cooper to confirm that Cooper has sufficient control over and access to its majority-owned subsidiary in China to permit it to deliver current consolidated financial information and auditors’ comfort letters and that Cooper is in compliance with covenants and representations in the merger agreement. To date, Cooper has been unable or unwilling to provide these confirmations. Cooper's inability to access the facilities of its Chinese subsidiary, to determine what products this subsidiary is producing or to whom those products are being sold, to track or control how its funds are being spent or even to access operating or financial information, either physically or remotely, goes well beyond any typical work stoppage. Cooper has misrepresented its management and control of this asset to Apollo and to its own shareholders. While Apollo continues to be supportive of Cooper’s efforts to establish control over its subsidiary’s operations and to assert Cooper’s rights against its JV partner, Apollo cannot be responsible for Cooper’s failures to do so.

“Apollo and its financing banks, Morgan Stanley, Deutsche Bank, Goldman Sachs and Standard Chartered Bank, are justified under the merger agreement to request that Cooper provide updated financial statements and guidance in light of the significant and unanticipated costs that go well beyond those Apollo is obligated to bear under the merger agreement.

“Cooper has acknowledged to Apollo that some price reduction is warranted. The issue now is by how much. On top of the USW issue, Cooper has breached material representations and covenants, including with respect to its majority-owned China subsidiary due to the fact that Cooper has no control over the subsidiary or access to its books and records.

“Under the circumstances, Cooper’s decision to file a complaint at this time is inexplicable and can only be seen as a diversionary smokescreen or an unfortunate acknowledgement that Cooper will be unable to meet its obligations necessary to complete the transaction. We regret and disagree with the characterizations Cooper made in its complaint and look forward to answering in due course. We urge Cooper to stop this time wasting and costly exercise and focus on solving the outstanding issues.

“It remains Apollo’s sincere desire to reach a satisfactory resolution on all matters and proceed with closing its acquisition of Cooper.”

Cooper says:

"As outlined in the complaint filed Friday, Cooper is acting in the best interests of our shareholders, who overwhelmingly approved the pending merger with Apollo for $35 per share. Cooper has not agreed that a reduction in share price is warranted. We are pleased that Apollo shares Cooper's commitment to the strategic merits of the transaction. The situations with the USW and the joint venture partner and union in China are a direct result of the merger agreement, and are risks Apollo assumed under the merger agreement. We believe that the situation with the USW can be resolved in a timely manner and ask that Apollo proceed expeditiously toward resolution with the USW, working with Cooper. With respect to China, Cooper explained in the complaint filed Friday, Oct. 4 and in an earlier proxy statement that the company has been prevented by the joint venture partner and union access to certain operational and financial information. We continue to work toward resolving the issues in China through communication with the workers, union and the joint venture partner. Cooper looks forward to closing this compelling transaction with Apollo, which will provide multiple benefits for both organizations, their employees, customers and communities."

Based on their respective comments, what are your thoughts on the proposed merger?

Related Topics: Apollo financials, China, Cooper financials, lawsuit, USW

Bob Ulrich Editor
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