Cooper Tire loses court bid to rescue Apollo merger

Cooper Tire & Rubber Co's efforts to force Apollo Tyres to complete its proposed acquisition of the U.S. company for $2.3 billion received another legal setback, paving the way for the Indian company to walk away from the deal.

The Delaware Supreme Court on Monday dismissed Cooper's appeal against an earlier lower court ruling that Apollo was meeting its obligations to reach new contract terms with unions at Cooper plants in Ohio and Texas.

With the latest court ruling, which came three days before it was due to be delivered, the Findlay, Ohio-based company has only a slim chance to keep Apollo from walking away from the long-pending and contentious deal.

Apollo, which would become the world's seventh-biggest tire maker if the deal is completed, wants to pay less than the $35 per share agreed in June because of demands by unions at Cooper plants and disruptions at Cooper's venture in China.

Cooper wanted the Delaware Supreme Court to overturn a ruling by a judge on the lower Court of Chancery who found last month that Apollo had not breached its obligations under the terms of the deal.

A new ruling was to be issued by December 31, when the merger agreement allows Apollo to walk away.

"We are pleased by the decision of the Delaware Supreme Court today, which did more than dismiss Cooper's appeal; the court decided the appeal was improvidently granted in the first place," Apollo said in a statement on Tuesday.

"Cooper's litigation strategy to date has done nothing but generate unnecessary cost for its shareholders and for Apollo, and compound the obstacles that Cooper's situation has created for this merger," the Indian company said.

Apollo, which is seeking to cut its dependence on domestic sales through the Cooper acquisition, said it continued to believe in the merits of the merger with the U.S. company and that it was "committed to finding a sensible way forward, if possible."

Cooper Tire could not immediately be reached for a comment outside the U.S. business hours.

The Indian company now has the option of walking away from the deal or renegotiating the transaction terms with Cooper if the U.S. company agrees to such a move, two sources with knowledge of the process said.

APOLLO SHARES RISE

Apollo stock rose as much as 8.7 per cent on Tuesday to Rs 92.15, a level last seen before the deal was announced in June, as investors bet on the Indian company dropping its pursuit to acquire Cooper.

Shares of Apollo lost a third of its value in just two days after the deal was announced as investors fretted over the fully debt-funded acquisition of Cooper, which was nearly three times the Indian company's market value at that time.

Cooper shares fell 5 per cent on Monday at $21.62.

Apollo has said it is committed to the takeover, but not at the current price, as issues including those involving Cooper's U.S. labour union - the United Steel Workers - and its Chinese joint venture made it difficult to close financing of the deal.

Cooper took Apollo to court in the United States over its failure to close the deal by October 4. Apollo has argued the U.S. company is actually the one who has not kept up its end of the bargain.

As the Indian company sees it, Cooper is at fault because it has been locked out of its Chinese joint venture. Without information from the venture, the U.S. company failed to report its financial data as required for Apollo to get financing.

Cooper has argued that the Chinese lock-out and labor problems would never have happened without the merger agreement. Risks associated with the deal were taken on by Apollo and should have been baked into its bid, according to Cooper.

The cases are Cooper Tire & Rubber Co v. Apollo (Mauritius) Holdings Pvt, CA8980, Delaware Chancery Court (Wilmington) and 624-2013, Supreme Court of Delaware (Dover).

Copyright: Thomson Reuters 2013