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Cooper Tire & Rubber Co. v. Apollo (Mauritius) Holdings Pvt. Ltd.

Court of Chancery of Delaware

July 9, 2014, Submitted; October 31, 2014, Decided

Civil Action No. 8980-VCG

Opinion

GLASSCOCK, Vice Chancellor

This matter involves the unraveling of the Agreement and Plan of Merger (the "Merger Agreement") by which a large Indian tire manufacturer—Apollo (Mauritius) Holdings Pvt. Ltd ("Apollo")—was to buy a large American tire company—Cooper Tire & Rubber Company ("Cooper"). Among other reasons, acquisition of Cooper was attractive to Apollo because it would provide Apollo an entrée into the Chinese market; a significant part of Cooper's business was its majority ownership of an affiliate, a Chinese tire manufacturer, Chengshan Cooper Tires ("CCT"). Once the merger was announced, however, [*2]  Cooper's ownership of the affiliate emerged as a major obstacle to the deal's consummation. The minority partner of CCT—known as Chairman Che—either vehemently opposed the merger or saw it as an opportunity to extort value from the parties beyond what his minority interest would justify. In either case, he used his position of authority over the workers and their union to physically seize the CCT facility, prevent production of Cooper products there, and deny access of the parties to the facility and to CCT's financial records.

Consummation of the deal encountered another obstacle: Cooper faced resistance from its own domestic union, the United Steelworkers ("USW"), which argued that the merger triggered a contractual right to renegotiation in several of its collective bargaining agreements. An arbitrator agreed, and Cooper and Apollo reluctantly entered into an agreement with the USW whereby the merger could not close until a settlement was reached as to the collective bargaining agreements. Initially barred from the negotiating table by Apollo due to its historically poor relations with its labor unions, Cooper became increasingly frustrated by Apollo's lack of progress in negotiating [*3]  with the USW. As the deadline loomed for Cooper to report its third quarter financials—a condition to closing the merger, which Cooper could not fulfill due to the disruption at CCT—Cooper began to suspect that Apollo had grown cold to the merger and was failing to negotiate with the USW in good faith in order to avoid consummating the transaction.

Once Cooper suspected bad faith, the Merger Agreement came a cropper. Cooper sued, seeking specific performance or damages for breach of contract. Apollo counterclaimed, requesting that I declare that Cooper had failed to meet all conditions to closing, and was therefore not entitled to relief. The matter moved on an expedited schedule to trial, where Cooper asked me to quickly consider the specific performance issue in isolation, citing exigencies of its impending financial reporting obligation. I complied with Cooper's request; in a November 8 bench ruling, supplemented the next day by a letter opinion (together, the "USW Opinions"), I found that the failure to reach an agreement with the USW prevented the transaction from closing at that time, that this failure was not the result of a contractual breach on Apollo's part, and thus that [*4]  Cooper was not entitled to specific performance. Because Cooper represented that appellate relief would be meaningless if not given immediately, I certified an interlocutory appeal on the narrow grounds of my ruling on specific performance. While that appeal was pending, however, Cooper dropped its request for specific performance, notifying the Supreme Court that it instead intended to terminate the merger and sue for damages under the reverse termination fee provisions of the Merger Agreement (the "Reverse Termination Fee"). The Supreme Court dismissed the interlocutory appeal as improvidently accepted, and shortly thereafter Apollo moved for an order temporarily restraining Cooper from drawing on a letter of credit for the Reverse Termination Fee and, in an effort to permanently prevent Cooper from seeking the Reverse Termination Fee, a judicial declaration on its counterclaim that Cooper had not satisfied all conditions to closing the merger as of the trial date. This Memorandum Opinion addresses the latter issue, and the effect that the rather bizarre events in China had on Cooper's ability to perform as called for in the Merger Agreement. For reasons arising from the takeover [*5]  at CCT, and independent of the failure to reach an agreement with the USW, I find that Cooper was unable to satisfy all conditions to closing.

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2014 Del. Ch. LEXIS 223 *; 2014 WL 5654305

COOPER TIRE & RUBBER COMPANY, Plaintiff, v. APOLLO (MAURITIUS) HOLDINGS PVT. LTD., APOLLO TYRES B.V., and APOLLO ACQUISITION CORP., Defendants.

Notice: THIS OPINION HAS NOT BEEN RELEASED FOR PUBLICATION. UNTIL RELEASED, IT IS SUBJECT TO REVISION OR WITHDRAWAL.

Prior History: Cooper Tire & Rubber Co. v. Apollo Mauritius Holdings Pvt. Ltd., 2013 Del. Ch. LEXIS 259 (Del. Ch., Oct. 25, 2013)

CORE TERMS

Cooper, merger agreement, merger, Subsidiaries, adverse effect, conditions, negotiating, lockout, parties, Tire, obligations, suppliers, employees, financing, contractual, termination fee, labor union, disruptions, contends, covenants, commercially reasonable, specific performance, representations, argues, terms, consummate, Compliant, joint venture partner, declaratory judgment, joint venture

Civil Procedure, Preliminary Considerations, Equity, General Overview, Contracts Law, Estoppel, Equitable Estoppel, Relief, Contract Interpretation, Parol Evidence