Cooper Tire Heads to Court to Force $2.2 Billion Deal Closing

The rubber meets the road this week for a troubled $2.2 billion tire deal.

Ohio-based Ohio’s Cooper Tire & Rubber Co.CTB -1.12%, has sued its would-be buyer, Apollo Tyres Ltd.500877.BY +1.69% of India, in Delaware court, seeking a judge’s order forcing Apollo to close the deal.

Apollo says that difficulty reaching a new contract with Cooper’s U.S. labor union, uncertainties swirling around Cooper’s operations in China, and worsening financials at Cooper’s North American business have made it impossible for Apollo to raise the debt it needs for the transaction. It says it still wants to buy Cooper, but for less than the agreed-on $35-per-share price.

Cooper says Apollo is bound by the original agreement inked in June.

The trial starts Tuesday. Click here for a more in-depth analysis of the two sides’ arguments.

Two things to watch:

First, what will Vice Chancellor Sam Glasscock, the judge hearing the case, make of Apollo’s efforts to negotiate with the union? The merger agreement requires Apollo to use its “reasonable best efforts” to get consents from any parties, like the steelworkers, whose blessing is needed.

Apollo says its chairman has personally flown from India to attend union meetings, and that it has offered generous wage and benefit packages. It says the union is milking its bargaining leverage to ask for unreasonable terms.

But Cooper says Apollo is deliberately stalling in an effort to drag the negotiations past a Nov. 10 deadline for Cooper to file its third-quarter financial statements. At that point, Cooper’s admittedly slipping grip on its China joint venture — whose workers have gone on strike and whose executives have refused to give Cooper any financial information about the business — comes into play. Without updated financials, Cooper will likely be in breach of the merger agreement, which requires it to keep Apollo informed about all aspects of its operations.

Cooper said last week that it had struck a deal with the union, but that Apollo refused to sign off.

Second, if the judge agrees with Cooper and orders Apollo to close, what happens next? Apollo has loan commitments from Morgan Stanley MS +0.48% and others, according to regulatory filings, but says it so far has been unable to sell the long-term bonds it needs to replace the bank debt. Apollo is planning to borrow more than $2.3 billion to pay for Cooper’s shares, and plans to finance its $450 million equity slice, too, according to the proxy statement.

Vice Chancellor Glasscock can force Apollo to sign the dotted line, but he can’t make bond investors buy the debt. Forcing a close while the deal’s debt structure is up in the air could shift the fight from Apollo vs. Cooper to Apollo vs. its lenders.