Apollo and Cooper can still do a deal
By Una Galani
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
The buyout of Cooper Tire & Rubber Co hasn‚Äôt gone flat yet. The U.S. company and Indian buyer Apollo Tyres are locked in a legal battle over an agreed $35 per share offer. But both sides insist they still see merit in a union that will create the world‚Äôs seventh biggest tyre manufacturer. Adjusting Apollo‚Äôs offer to reflect the potential cost of removing the two main roadblocks to the deal suggests a revised bid of at least $27 per share.
The recent ruling by a Delaware court that Apollo had not deliberately delayed the transaction means the chances of the $2.3 billion takeover going ahead as planned are slim. There are two reasons the Indian company wants a lower price. The first is securing the backing of unhappy labour unions at Cooper‚Äôs plants in the United States. Apollo reckons this will cost $125 million, though Cooper thinks the bill will be less than a tenth of that.
The bigger headache is the minority shareholder in Cooper‚Äôs Chinese joint venture, which has been agitating against the deal. Apollo says Chengshan Group demanded $400 million to sell its 35 percent stake in the joint venture. That‚Äôs twice what the Indian company offered to pay back in September.
Add the two worst-case estimates together, and Apollo would have to stump up an extra $525 million. Subtract that amount from its original offer, and Cooper is worth $27 per share – a mere 10 percent premium to the company‚Äôs pre-bid price in June.
Cooper shareholders might balk at such a low price. But the Chinese dispute has exposed the U.S. company‚Äôs loose grip on its joint venture, which contributes around a quarter of revenue and earnings. Assuming the subsidiary‚Äôs value is just 25 percent less than before would reduce Cooper‚Äôs standalone value by $100 million, leaving it worth around $23 per share.
The culture clash exposed by the court case suggests an Apollo-Cooper union might struggle at any price. But if the Indian company genuinely still wants to go ahead, Cooper shareholders may well decide a lower offer from Apollo – or a rival bidder – is preferable to going it alone.