India's Apollo Tyres Ltd (APLO.NS) and Cooper Tire & Rubber Co (CTB.N) are at odds over whether Apollo can reduce the price for its proposed takeover of the U.S. firm, the latest hurdle in a deal beset by lawsuits and labor issues.
Under the initial $2.5 billion deal signed in June, Cooper shareholders stand to receive $35 per Cooper share, a premium of more than 40 percent to its price at the time.
Cooper shares initially climbed towards the buyout price but have lost about 15 percent from that recent peak as obstacles to the deal emerged, including opposition from its workers.
Cooper investors, who are fast losing confidence in the deal, say the company is still in play given industry consolidation, with one shareholder suggesting that the American tire maker should buy Apollo instead.
Apollo has sought to reduce the price it would pay to by more than $2.50 per share, Cooper said in a filing to the U.S. Securities and Exchange Commission on Monday. (r.reuters.com/zep63v)
Cooper said in the filing that on October 3, Apollo representatives informed the company that it wanted a price renegotiation "this time suggesting a price reduction far greater than the $2.50 reduction it had earlier proposed, and at one point referencing '$8 or $9' per share."
Apollo declined to comment on the Cooper filing.
The disagreement over price came to light after Cooper on Friday filed a complaint in a U.S. court to force Apollo to close the acquisition "expeditiously.
Apollo said on Sunday that it might face significant costs that were well beyond those it anticipated under the initial merger agreement. These relate to labor issues in the United States and in China, where workers at Cooper's joint venture have been on strike for three months in opposition to the deal.
"Cooper has acknowledged to Apollo that some price reduction is warranted. The issue now is by how much," Apollo said on Sunday.
Cooper said: "Cooper has not agreed that a reduction in share price is warranted."
The two companies have until the end of the year to resolve their pricing dispute and close the transaction, to be funded entirely through debt.
If completed, the deal would turn the Indian company into the world's seventh-largest tire maker and give it access to the U.S. and China markets. It would also represent the second-largest U.S. acquisition by an Indian company.
Cooper shares closed down 13 percent at $25.72 on the New York Stock Exchange on Monday, just $1 above its trading levels prior to the deal announcement in June.
Shares in Apollo, which have lost about 25 percent since the deal was announced, ended 5 percent higher on Monday.
Besides opposition from Cooper's China joint venture partner and workers, a U.S. arbitrator has ruled that Ohio-based Cooper cannot sell two of its U.S. factories until a new collective bargaining agreement is reached between Apollo and members of the plants' union, the United Steelworkers (USW).
"Apollo has indicated to the USW in discussions over the past two weeks that Apollo is willing to make material concessions to the USW, subject to arranging for additional financing or financial concessions," Apollo said.
Cooper, however, said the labor issues were a result of the acquisition and were risks that the Indian company assumed under the agreement.
Chris DeMuth Jr., portfolio manager at Rangeley Capital, said, "One way to capture the strategic benefits of the deal, while sidestepping the problems with American and Chinese unions, would be for Cooper to buy Apollo."
"Apollo's share price has been weak as has India's currency, so this would be something that Cooper could do," said DeMuth. Rangeley owns under 5 percent of Cooper shares.
The Indian rupee has declined more than 6 percent against the dollar since the deal was announced.
Cooper on Friday said it had satisfied its conditions under the deal after receiving approval from its shareholders last week, and that Apollo was breaching the merger agreement by delaying resolution of the USW issue.
While workers at Cooper's China joint venture, Cooper Chengshan Tire Co, in eastern Shandong province, have been striking against the deal, Cooper's Chinese partner has filed a lawsuit seeking to dissolve their joint venture.
"Cooper has misrepresented its management and control of this asset to Apollo and to its own shareholders," Apollo said in its statement.
Banks have committed to finance Apollo's deal until December 31, 2013. Apollo said it and its lenders were justified in seeking updated financial statements and guidance from Cooper.
"If Apollo has found things which were not in line with what have been represented to them, they are fully within their rights to ask for the price to be reduced or even (seek) damages, depending on what was originally represented to them," said Harish H.V., head of corporate finance practice at advisory firm Grant Thornton in India.
"Now there is a distinct possibility of the deal not happening, whether it is 10 percent, 40 percent or 80 percent is difficult to call, but that was not the case earlier," he said.
Tom Mangan of James Investment Research, another Cooper investor, said ahead of the shareholder meet last week that "even if the merger doesn't go through, Cooper Tire is in play, and it opens the door to another suitor, perhaps a domestic one."
(Additional reporting by Sumeet Chatterjee in MUMBAI and Samuel Shen in SHANGHAI; Editing by Tony Munroe, Jane Merriman and Sriraj Kalluvila)