Apollo Tyres has reported a fall in second quarter revenue in its home market India, underscoring the need to complete the acquisition of US company Cooper Tire & Rubber to diversify overseas.
Reuters noted that Apollo had originally agreed to buy Cooper for about US$2.5bn, a deal which would transform the Indian company into the world’s seventh largest tyre maker and cut its dependence on domestic sales, but the transaction has hit several obstacles, including opposition from Cooper’s staff.
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Apollo reported a profit of INR2.19bn for the quarter ended 30 September, up 44% from a year earlier, helped by lower raw material costs. It also benefited from a weak rupee, which boosted its European revenues.
Four analysts on average were expecting a net profit of INR1.79bn, according to Thomson Reuters I/B/E/S.
But Apollo, which depends on India for two-thirds of its revenue, reported a 7% drop in domestic revenues, compared with a rise in the first quarter.
Apollo has said it is committed to the takeover, but not at the current price of $35 a share, as issues including those involving Cooper’s US labour union – United Steel Workers – and its Chinese joint venture made it difficult to close financing of the fully debt-funded deal.
Cooper has also taken Apollo to court in the United States over its failure to close the deal by 4 October.
Last Friday, a judge from the Delaware Court of Chancery, which is hearing the case, ruled that Apollo did not breach its obligation to close the deal and was not intentionally dragging its feet in talks with United Steel Workers as an excuse to cut the deal’s price.
Judge Sam Glasscock said in a separate letter to the companies’ lawyers on Saturday that Cooper had not yet proved it was entitled to receive the initially agreed $35 per share from Apollo to close the deal.
Glasscock said Cooper would have to prove it had satisfied its obligations under the merger agreement, including providing its most recent financial reports which are due to US regulators this week.
Glasscock also said on Friday that if his ruling were not reversed by the state’s supreme court and if Cooper did not provide its financial reports, the deal would fall through.
“The above ruling is a positive development for Apollo Tyres and lends weight to its argument for a reduction in the offer price for Cooper Tires,” Mumbai-based Ambit Capital analyst Ashvin Shetty told Reuters.
