Cooper Tire & Rubber Shares Plunge 12% As It Agrees To Price Cut With Apollo

(RTTNews) - Shares of Cooper Tire & Rubber Co. (CTB) are plunging 12 percent on Monday after news emerged that the replacement tires maker has agreed to concessions on the total consideration for its acquisition by Indian tire company Apollo Tyres Ltd. However, the companies are unable to reach an agreement on the amount of concession.

Apollo Tyres has asked Cooper Tire to reduce the price consideration by more than $2.50 per share in view of the labor issues in US and hurdles at Cooper Tire's joint venture in China.

On Friday, Cooper Tire moved Delaware Chancery Court asking that subsidiaries of Apollo Tyres Ltd be compelled to expeditiously close the pending merger in accordance with the terms of the definitive merger agreement. Cooper alleged that Apollo is deliberately delaying the labor agreement with the United Steelworkers or USW union inorder to re-negotiate a better deal.

Cooper Tire stockholders voted overwhelmingly to approve the pending merger on September 30, satisfying Cooper Tire's final affirmative condition under the merger agreement to close the deal.

"Cooper has an obligation to protect the rights of our stockholders, who voted overwhelmingly in favor of the merger. With their approval, we have met our conditions for closing. The complaint filed today is a necessary step in the process to assure that the terms of the merger agreement are met as required and that we do everything possible to get the transaction closed promptly," Cooper Chairman, President and CEO Roy Armes stated.

Findlay, Ohio-based Cooper Tire agreed in mid-June to be acquired by Apollo Tyres for $35 per share in an all-cash deal valued at about $2.5 billion to create the seventh-largest tire company in the world that will have a significant presence in the world's three largest automotive markets - the U.S., Europe and China.

The deal that was struck at a 43 percent premium was unanimously approved by the boards of directors of both companies. Apollo expects the transaction to be immediately accretive to its earnings.

However, the deal, which is expected to close within the second half of 2013, has met with delays due to material impacts expected from the pending finalization of a labor contract with the USW union. The USW represents Cooper employees at facilities in Findlay, Ohio and Texarkana, Arkansas.

Apollo stated that it is willing to make material concessions to the USW to finalize the contract, subject to arranging for additional financing or financial concessions from Cooper Tire. Apollo has engaged actuarial advisers to evaluate the financial impact of certain of the USW's requests.

Meanwhile, Cooper Tire has acknowledged to Apollo that some price reduction is warranted, but the issue now is by how much. On top of the USW issue, Cooper Tire has breached material representations and covenants, including with respect to its majority-owned China subsidiary due to the fact that Cooper Tire has no control over the subsidiary or access to its books and records.

Apollo and its financing banks, Morgan Stanley, Deutsche Bank, Goldman Sachs and Standard Chartered Bank, are justified under the merger agreement to request that Cooper Tire provide updated financial statements and guidance in light of the significant and unanticipated costs that go well beyond those Apollo is obligated to bear under the merger agreement.

"Apollo is an outstanding company. We are confident both organizations will work effectively together to take advantage of the many opportunities this compelling transaction will offer within the world's largest tire market of North America as well as the fastest growing geographies including China and India," Armes added.

In Monday's regular trading session, CTB is currently trading at $25.97, down $3.54 or 12.00% on a volume of 8.87 million shares. In the past 52-week period, the stock has been trading in a range of $18.38 to $34.79.