Apollo, Cooper clash over $2.5 billion price in tyre deal setback

India's Apollo Tyres and Cooper Tire & Rubber Co are at odds over whether the Indian firm can reduce the price for its proposed takeover of the US firm, the latest hurdle in a deal beset by lawsuits and labour issues.

Apollo in June agreed to buy Cooper for about $2.5 billion, a transaction that would turn the Indian company into the world's seventh-largest tire maker and give it access to US and China markets. The deal would also be the second-largest US acquisition by an Indian company.

Under the initial agreement in June, Cooper shareholders stand to receive $35 per Cooper share, a premium of more than 40 per cent to its price at the time.

Cooper shares initially climbed towards the buyout price but have lost about 15 per cent from that recent peak as obstacles to the deal emerged, including opposition from its workers.

Apollo Tyres has now sought to reduce the price it would pay to buy Cooper by more than $2.50 per share, the US company has reported in a filing to US market regulator Securities and Exchange Commission (SEC) on Monday.

Cooper said in the filing that on October 3, Apollo representatives informed the company that it 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".

Apollo declined to comment on the Cooper filing.

Shares in Apollo, which have lost about 25 per cent since the deal was announced, gained as much as 7 per cent on Monday.

The disagreement over price came to light after Cooper on Friday filed a complaint in a US court to force Apollo to close the acquisition "expeditiously".

Apollo said on Sunday that it might face significant costs that were well beyond those it anticipated under the initial merger agreement. These relate to labour issues in the United States and in China, where workers at Cooper's joint venture have been on strike for three months in opposition to the deal.

"Cooper has acknowledged to Apollo that some price reduction is warranted. The issue now is by how much," Apollo said on Sunday.

Cooper said that it "has not agreed that a reduction in share price is warranted".

The two companies have until the end of the year to resolve their pricing dispute and close the transaction, to be funded entirely through debt.

Labour pain

Besides opposition from Cooper's China joint venture partner and workers, a US arbitrator has ruled that Ohio-based Cooper cannot sell two of its US factories until a new collective bargaining agreement is reached between Apollo and members of the plants' union, the United Steelworkers (USW).

"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," the Indian firm said.

Cooper, however, said the labour issues were a result of the acquisition and were risks that the Indian company assumed under the agreement.

Cooper on Friday said it had satisfied its conditions under the deal after receiving approval from its shareholders last week, and that Apollo was breaching the merger agreement by delaying resolution of the USW issue.

While workers at Cooper's China joint venture, Cooper Chengshan Tire Co, in eastern Shandong province, have been striking against the deal, Cooper's Chinese partner has filed a lawsuit seeking to dissolve their joint venture.

"Cooper has misrepresented its management and control of this asset to Apollo and to its own shareholders," Apollo said in its statement.

Banks have committed to finance Apollo's deal until December 31, 2013. Apollo said it and its lenders were justified in seeking updated financial statements and guidance from Cooper.

"If Apollo has found things which were not in line with what have been represented to them, they are fully within their rights to ask for the price to be reduced or even (seek) damages, depending on what was originally represented to them," said Harish HV, head of corporate finance practice at advisory firm Grant Thornton in India.

"Now there is a distinct possibility of the deal not happening, whether it is 10 per cent, 40 per cent or 80 per cent is difficult to call, but that was not the case earlier," he said.

Copyright @ Thomson Reuters 2013