Cooper’s Appeal Against Apollo Tyres Dismissed; Apollo up 40% in 5 months

Comments Off Written on December 17th, 2013 by
Categories: ApolloTyre
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The Delaware Supreme Court dismissed Cooper Tire’s appeal against a lower court ruling that Apollo was meeting its obligations as part of their $2.2 billion merger plan. Apollo bid $35 per share, but Cooper had complained that Apollo is dragging its feet after getting jitters on the now-seemingly-high price.

As part of the closing conditions, Apollo was supposed to negotiate new terms with the employee union, which seems to have demanded enough for Apollo to request a reduction in price, which wasn’t acceptable to Cooper.

On it’s own front, Cooper has lost complete control of its Chinese subsidiary which was against the Indian company taking over. The Chinese entity has been manufacturing tyres but under a different brand since August, and has refused to allow any Cooper managers to enter its premises. Cooper has no idea of the financial situation at the China unit, and needs to have handed over the financials by November 15 for Apollo to have closed the financing by December 31. They have not been handed over.

This, and the fact that the court effectively finds no dragging of feet, means that Apollo can walk away from this deal on December 31 without the $112 million breakup fee if they did so earlier.

This is not the end of court cases, because the Cooper board would have to chase this to death. They effectively have overseen a situation where they got an offer for what was a dud deal, saw employees renegotiate for much higher than they would have been able to afford without Apollo, and lost control of the China unit. This, in a nutshell, sucks.

If the Cooper board were to give up, there will be tons of furious Cooper shareholders, who’ve seen all of this and the stock price plummet to $21.6, 10% lower than the $24 before the merger announcement. They’ll sue the board, and to ward them off, the board will have to keep suing Apollo for even spelling mistakes.

Apollo comes out the winner. Without the China unit, the acquisition wasn’t worth it. It’s share price has gone from the Rs. 62 post announcement (when it fell from Rs. 96), making it an interesting buy; if it got the deal, the company would benefit in the longer term (assuming China was in), and if it didn’t, the price would go back to at least the old price because Apollo’s financials have been excellent (Profits up 44% in Q2).

The stock’s move up a bit, and from my average price of about Rs. 60, the price of Rs. 84 is a 40% gain in 5 months. I’m going to lighten up if the share goes between Rs. 90 and Rs. 100 and wait for Q3 to see how the Indian auto-sales decline has hit the company. Here’s the share:

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There’s a nice little gap that should act as a barrier, but if it doesn’t it’ll target the Rs. 94 level. (The last statement is a short term assessment based on technicals alone, and is not a prediction)

Disclosure: Long Apollo. I’ve been disclosing this through all the Apollo posts. HT @madmanweb for the info.

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The man behind Capital Mind. Deepak is a co-founder at MarketVision, a financial knowledge company. Deepak also provides data research and consulting services, and now lives in Bangalore. Connect with him at deepakshenoy@gmail.com.