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Apollo Counters Cooper allegations; Deal Might Fall Through

The Cooper-Apollo merger is disintegrating before it even happened. While Apollo was sued by Cooper tire for not attempting to do things fast enough, Apollo has countered with an allegation that the conditions precedent (CP) to the deal were not met, so it must be annulled.

Cooper’s faced internal struggles with the deal. Its Chinese unit doesn’t like the merger, so they’ve cut Cooper out (and it can’t get any financial statements out). The United Steel Workers union has decided to negotiate hard for concessions before it allows the merger to go through. In the UK, a pension trust has decided to ask the company to shore up financing or guarantees for the pension plan, without which it will invoke moral hazard rules, after which the company must comply.

Additionally, due to all the lockouts in their most profitable Chinese subsidiary (CCT) the revenue and profit estimtes have fallen substantially.

The breakup of the deal will lead to more than $50million if it’s found Cooper’s at fault, and $112 million it’s Apollo. Stakes are high, but it seems like the ball is in Apollo’s court, since it’s unlikely that such adverse actions.

After climbing to Rs. 71, Apollo shares have fallen down to Rs. 65. Cooper Tireis now about $26 a share, more than 20% below the offer price of $35. The deal might not be fated to go through.

Impact: if the deal doesn’t finish, Apollo tyres might go up in price (depressed now due to the fears on the merger).

Disclosure: Long apollo.

  • sameer says:

    but how much time it would take … doesn’t it have opportunity cost?

  • Krish says:

    Apollo has 3 odds against it. First it has to incur legal fee and it is expensive especially for international arbitration.
    If the battle is lost, it may have to pay huge settlement fee or penalty which would again drain the balance sheet.
    Even if above turn in favor, it is an expensive deal for Apollo. It is paying by its nose and it takes very long time to get some juice out of the investment.
    What a mess it has created with legal battles on every front and mainly opposition from unions. Looks like, some nationalities would never like Indian management at the helm and I wonder whether Apollo would ever have smooth going.
    Indian investors need to put in lot of pressure on Apollo management to get out of this deal. Else, future of the company and stock looks very bleak. Indian companies are not tend to be strong in Contracts unlike their overseas partners and hope its exit doors are not without any webs.