Chengshan to buyout Cooper

The Chinese tyre manufacturer that wrecked Apollo Tyres’ planned acquisition of Ohio’s Cooper Tire will exercise its right to take over the US company’s largest factory, ending a bitter year-long commercial battle.

Apollo, based in Gurgaon, India, last June offered to pay $2.5bn for Cooper in a deal aimed at creating the world’s seventh-biggest tyremaker.

But the proposed acquisition – which would have been corporate India’s largest takeover of a US target – was derailed when thousands of Chinese workers at Cooper’s joint venture with state-owned Chengshan Group seized the facility in Shandong province and evicted the US company’s managers.

The dispute highlighted the power that Chinese workers could yield over cross-border acquisitions, even if the buyer and seller were not based in China.

In a similar incident in March, workers at an IBM factory in southern China went on strike, demanding better terms ahead of the US tech company’s sale of its x86 server business to Lenovo.

Liu Shuhong, a senior executive with the Chengshan Group, told the Financial Times that her company would pay $285m for Cooper’s controlling 65 per cent stake in the two companies’ joint venture.

Earlier this year, the joint venture’s value was independently appraised at $438m. Chengshan then had the right to either acquire Cooper’s majority holding or sell its own 35 per cent stake to the US company. If it chose to do neither, Cooper would then have had an option to buy out Chengshan’s stake.

“We consider the valuation to be fair and have decided to buy Cooper’s stake,” Ms Liu said, adding that it had informed the US company of its decision on September 30. Cooper executives could not immediately be reached for comment.

The agreement marks the end of an eight-year partnership. The factory was the Ohio company’s largest manufacturing operation and a key part of the Apollo-Cooper deal, which attempted to combine Apollo’s strong presence in India and Africa with Cooper’s manufacturing and distribution networks in the US and China.

The Chinese workers and Chengshan management both objected to the proposed takeover, saying they were concerned about the debt that Apollo would take on to complete the acquisition.

Cooper tried to force Apollo to complete the deal, but the Indian company refused because of the unrest at the China factory. A Delaware court ruled in Apollo’s favour in November and the deal was abandoned on December 30.

Some analysts had expected Chengshan would sell its stake to Cooper because of the difficulties involved in achieving economies of scale with just one factory. Chengshan’s brand is also little known outside China.

But Ms Liu argued that Chengshan was ready for the challenge, in part because of what it had learned during the course of its partnership with Cooper.

“It will be difficult for us after the split because Cooper is a big company with an international brand,” she said. “But we are confident that after our eight-year partnership with Cooper, we can build Chengshan into a good brand too.”

Under the earlier valuation and sale agreement, Chengshan will continue to produce tyres for Cooper after taking back full ownership of the factory.