Tyremakers’ takeover spat faces high toll
By Una Galani
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
Apollo Tyres’ spat with its U.S. target could face a high toll. The Indian firm wants to renegotiate its $2.5 billion takeover of Cooper Tire & Rubber following protracted disputes with workers in the United States and China. Cooper has gone to court to force its suitor to pay up. In this fight, a compromise looks like the least bad outcome.
The Indian firm appears to have applied the brakes after underestimating the risks of a backlash by Cooper’s workers in two countries. The situation in China is particularly acute: employees have locked out the management and Cooper’s minority partner is seeking to dissolve the joint venture.
Apollo now admits that resolving the dispute could pile “significant and unprecedented costs” onto what is already a highly-geared transaction. Meanwhile, a U.S. arbitrator has ruled that the Indian company must reach an agreement with workers at two plants in Ohio and Texas in order for that part of the deal to proceed.
Apollo appears to have few grounds for renegotiating the combination that would create the world’s seventh-largest tyre maker. The merger agreement specifically precludes Apollo from using labour issues or disputes with Cooper’s partners as a reason to adjust the terms. However, negotiations with U.S. workers could drag on. In its court filing, Cooper accuses Apollo of deliberately delaying a deal with the U.S. union to prevent the deal from closing after coming under fire from analysts for overpaying.
Both sides have little to gain from the deal skidding off the road. Apollo could potentially face a large liability to Cooper’s shareholders if it pulls out without a strong legal case. The collapse of what would be the second largest takeover of a U.S. company by an Indian acquirer would also reflect badly on India Inc. Unresolved labour issues, meanwhile, would probably deter any future buyers for Cooper.
Investors are increasingly doubtful the deal will cross the finish line. Even before news of Cooper’s lawsuit, the U.S. company’s shares were trading at $29, roughly half way between the pre-bid price and Apollo’s $35-per-share cash offer. With both sides still agreeing on the strategic rationale for a union, Apollo and Cooper have a big incentive to find the middle lane.
[Corrects to describe deal as “the second largest” takeover of a U.S. company by an Indian company in fifth paragraph of the view. A previous version said “the largest”.]