Court rules against Cooper’s Apollo deal breakup fee

Apollo Tyres has responded positively to a court decision against Cooper Tire & Rubber’s bid for compensation following the breakup of the Apollo/Cooper acquisition late last year. Cooper sought a US$112 million breakup fee as it viewed Apollo as having breached the merger agreement, however Delaware Chancery Court Judge Sam Glasscock III ruled on 31 October that Cooper itself hadn’t done all it could to satisfy the deal’s closing conditions.

“We are pleased by the decision of Delaware Vice Chancellor, Glasscock,” wrote Apollo Tyres in a statement released on 2 November. “This ruling vindicates our consistent stand that even as Apollo Tyres made exhaustive efforts to complete the deal, Cooper failed to comply with its contractual obligations because it was unable to control its largest subsidiary. This led it to hastily litigate and ultimately led to the failure of a transaction that would have benefitted Apollo and Cooper’s shareholders.”

Glasscock noted that Cooper’s Cooper Chengshan (Shandong) Tire Company joint venture operation in China (which is now being fully acquired by Chengshan Group Company) was a “major obstacle” in the way of the deal’s closure; a strike was called at the factory after the deal’s announcement and plant managers later delayed releasing financial records. The judge added that “Cooper failed to comply” with wording to ensure that its subsidiaries operate “in the ordinary course of business,” and that failure to do this “is sufficient” to justify turning down the breakup fee it sought.

A statement released by Cooper Tire after the ruling acknowledges that “Friday’s ruling by the Delaware Chancery Court noted that what took place at our CCT joint venture after the merger was announced was unanticipated, and neither Apollo nor Cooper caused it to occur.” It continued: “Nonetheless, the court found that it prevented Cooper from complying with its contractual obligations necessary to close the merger. As a result of the ruling, Cooper is not entitled to the reverse termination fee. While the decision was not what we sought in the case, our company remains focused on running our business and meeting the needs of our customers around the globe.”

The court’s decision had an immediate effect on Apollo’s market price, with shares gaining as much as 6.4 per cent in trading after the ruling. Cooper’s share price dipped briefly to $31.67 on 31 October, however it ended the day’s trading at $32.21.