Back in June this year, Apollo Tyres decided to buy US based Cooper Tyre & Rubber (CTB) for more than $2.5 billion, or $35 a share. Apollo was required to use its “reasonable best efforts” to get consents from any parties, like the steelworkers and its Chinese JV partner, whose approval is needed. In the meantime, the markets did not wait to show its hatred of the deal.
Cooper Tyre & Rubber:
Turns out that CTB has an underfunded UK pension scheme, which has only about two-thirds of the cash it needs to pay its promised pension benefits (a shortfall of £76.5m as at December 2012). And going into the deal, CTB’s management did not disclose that its Chinese partner had flirted with making a bid for the company. The pissed-off Chinese JV partner then organized a strike, put guards at the door and refused to allow Cooper and Apollo access to its financials.
The shit-show doesn’t end there. Morgan Stanely and other bankers involved in the deal have been unable to find buyers for the bonds that were supposed to finance the deal. Apollo was planning to borrow more than $2.3 billion to pay for Cooper’s shares, and had plans to finance its $450 million equity slice as well.
Looks like the only option for Apollo is to stall for long enough that CTB is forced to file third-quarter financial statements. At which point it can try and wriggle out of the deal saying that key financial information was not disclosed during the time of the deal. However, CTB is having none of it. The company has dragged Apollo to court in its attempt to make it sign on the dotted line.
The question is what is Apollo going to do if it is instructed by the court to complete the deal but can’t find the financing promised by its banks? Interesting days ahead…