Cooper Tire tells court its China partner was eyeing bid

WILMINGTON, Delaware Tue Nov 5, 2013 2:57pm EST

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WILMINGTON, Delaware (Reuters) - Cooper Tire & Rubber Co's (CTB.N) partner in a Chinese joint venture was exploring a bid for the fourth-largest U.S. tire maker when Cooper struck a deal with an Indian suitor, Cooper's chief executive told a court on Tuesday.

After the deal was announced, Chengshan Group Co Ltd has attempted to kill its venture partner's deal with Apollo Tyres Ltd (APLO.NS) by locking out Cooper management and halting production of Cooper-branded tires, Roy Armes, Cooper's CEO, testified on Tuesday.

That dispute and a disagreement with a U.S. union are at the center of legal battle over the failure of Apollo to close its $2.5 billion agreement to acquire Cooper.

The deal would transform Apollo from a company dependent on the Indian market into the seventh-largest tire maker in the world with nearly 80 percent of its revenues generated overseas.

Cooper is coming off a record year for earnings and stands to lose the 40 percent premium that Apollo offered for its stock.

Judge Sam Glasscock must decide if the closing conditions to the deal have been met, and if not, who is to blame.

Apollo alleges Cooper has not provided it with the financial information needed to line up financing and accused the U.S. company of failing to control its Chinese joint venture.

As Cooper sees it, the Chinese lock-out is a risk that Apollo should have baked into its $35 per share price. The U.S. company says that Apollo is intentionally dragging its feet in labor talks with the United Steel Workers at two Cooper plants and using that as an excuse to seek a lower deal price.

Cooper wants Glasscock to order Apollo to accept a labor deal it reached with the union last week, and order the sale to Apollo to close.

Cooper shareholders appear to have their doubts about a deal getting done on the original terms, and on Tuesday the company's stock was trading at $24.89, down about 3 percent and well below the deal price.

Armes spent Tuesday morning describing the deteriorating relations with its partner in China once it unveiled a deal with Apollo.

Armes said that Chengshan Group had been in talks about making its own bid for the Findlay, Ohio-based company when Cooper agreed to a deal with Apollo.

Armes said he worked with advisors from Apollo to work out the problems in China and thought things were going well until an August 27 email from Neeraj Kanwar, Apollo's vice chairman. The message raised the possibility the Chinese problems could threaten the deal's financing.

"As I recall I was at first surprised and confused," said Armes, who said just three days earlier Kanwar's tone was friendly. "It seemed somewhat contradictory."

A few weeks later, an arbitrator issued an injunction preventing the deal from closing until a new labor deal had been reached with the United Steel Workers.

Armes said he was confident that an agreement would be reached, but just days before Cooper shareholders were to vote to approve the sale, Kanwar called to say a labor agreement would cost up to $125 million. The Indian company wanted to cut the deal price by as much as $2 per share.

"I was offended," said Armes. As he saw it, Apollo was asking Armes's shareholders to pay a very steep price that was allegedly being demanded by unions at the company's plants. Cooper has taken the position that the risk of labor problems should have been part of the price Apollo negotiated.

The trial will run through Thursday and Glasscock is expected to rule relatively soon after.

The case is Cooper Tire & Rubber Co v. Apollo (Mauritius) Holdings Pvt. Ltd, Delaware Court of Chancery, No. 8980

(Reporting by Tom Hals in Wilmington, Delaware; editing by Andrew Hay)

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