The $2.5 billion merger between India-based Apollo Tyres and Findlay, Ohio-based Cooper Tire & Rubber Co. faces some headwinds, according to a Wall Street Journal blog and a story in the Findlay Courier newspaper.
Essentially, both pieces point to worries that the companies are taking up too much debt to make the deal happen. Apollo is a smaller company acquiring a bigger company, and would take on $450 million in new debt. But it’s Cooper that’s taking on some $2.1 billion in new debt.
Both companies say the deal is “on track” to go through, but what else would you expect them to say?
The Reserve Bank of India said recently it wanted to review all overseas investments, to strengthen its currency, the rupee, and to manage the outflow of foreign exchange. While the Apollo-Cooper deal was announced before the RBI’s announcement, it could still look at the deal, particularly since Apollo seeks to work a deal that’s 450 times its net worth.
In addition, workers at the Cooper-Chengshan Tire plant, where workers recently went on strike to protest the deal, could wind up killing the deal altogether, the Courier said:
…. the largest, most profitable and fastest-growing Cooper Tire factory wants to leave the Cooper organization because of the Apollo deal.
That could prove to be a deal-killer, said Dick Stephens, former president of North American Tire Operations for Cooper. Stephens retired in 2006 after 28 years with the company.
Workers at a Cooper-Chengshan Group joint venture plant in China’s Shandong province are producing only Chengshan tires, not Cooper products, The Financial Times reported. It was the only way they would return to work after weeks of striking in protest of the Apollo deal, The Financial Times said.
Chengshan may buy out Cooper from the partnership, leaving Apollo with one other Cooper plant in China, IHS Global Insight Daily Analysis reported.
Managers of the Chengshan Group joint venture plant have asked a local Chinese court to dissolve Cooper’s partnership in the company, The Financial Times reported.
If the court dissolves the partnership, it could kill the Apollo deal, Stephens said.