Apollo takes a stand-off look: Chengshan launches the acquisition of Chengshan Cobalt Solutions

The second strike that Chengshan Cooper started on July 13 has lasted 18 days. There has been no positive response from the purchaser Apollo Tyres Ltd (ApolloTYR) ("Apollo"). According to the information conveyed by Cooper Tire & Rubber Company (NYSE: CTB), Apollo stated that the strike is the “internal conflict” of Cooper and it is necessary to wait. After Cooper has dealt with it, it will proceed with the acquisition.

According to an agreement previously signed between Cooper and Apollo, the two parties have a breach of contract of US$100 million. If the acquisition fails due to force majeure, there is no need to pay liquidated damages.

“Cooper still insists on selling to Apollo, but we will not agree.” On July 30th, deputy director of the Chengshan Group Office, Dong Zhaoqing, told reporters that in addition to questioning whether Apollo had the ability to integrate, Apollo’s attitude was out of the question. Also hurt them.

"We are studying the plan for the acquisition of Chengshan Cooper. We do not want to be acquired again," said Dong Zhaoqing. On the other hand, Cooper tires still support the Apollo acquisition, which made Chengshan Cooper have to protest by continuing strikes.

"Apollo has been reluctant to come forward and apparently has no sincerity to acquire Cooper," said Zhan Enping, a cross-cultural management expert at Shanghai University’s MBA academic director. At this time, Chengshan Cooper can only fight for more for himself through strikes. The time, but in this process, the Chinese Chengshan Group must come up with a solution to get rid of Cooper in order to completely solve this problem.

Four possible solutions

“The JV has just survived the integration period and began to make profits. It has to be sold again and faced with the next round of integration. Obviously we will not agree.” Dong Zhaoqing calculated for himself, and the loss of the strike has 200 Ten thousand yuan, and in the long run, some of the original customers will be slowly lost. In the end, this year, companies with profits of more than 400 million yuan may actually be depressed, and finally forced to auction.

For Cooper, Chengshan Cooper is the most profitable of the eight plants in the world, and the Chinese market where Chengshan Cooper is located is also the market with the largest demand in the world. If this business is lost, global Cooper sells. Less than a good price. This is also the main reason for the stalemate in the negotiations between Cooper and Chengshan.

"We are considering the proposals put forward in the first round of talks," said Dong Zhaoqing. In the first round of talks on June 26, Cooper and Chengshan discussed four options. The first proposal was "The Chengshan Group agreed to the Apollo Acquisition" and the second was "The Chengshan Group overwhelmed the overall acquisition of Cooper". .

“We will not agree to the Apollo acquisition. As for the overall acquisition of Cooper, we will not, first, the ability to finance. Second, we also have no ability to operate Cooper's global business,” said Dong Zhaoqing.

The outcome of the talks was that options 1 and 2 were not feasible, and options 3 and 4 required a longer period of communication and consultation. And on the 8th or 9th of July, it is determined that the three-party presidents of COOPER, Chengshan Group and Apollo Company will meet to discuss further the demands of the union.

The third and fourth options put forward by Cooper are currently more feasible. That is, Chengshan Group agrees to Option One, but begins to prepare for a wholly-owned purchase of Chengshan Cooper. In the fourth plan, Chengshan Group immediately informed Apollo that it was firmly opposed to this acquisition and immediately proceeded to wholly acquire Chengshan Cooper.

Acquiring China's equity key look at the price

“We are also studying the program, but this also needs a process. To prevent Cooper from selling hard, we can only continue the strike.” Dong Zhaoqing said that because Cooper and Apollo have signed a “package agreement” that is a global In the process of acquisition, it is also difficult to prevent Cooper from obstructing trade unions and selling hard.

Zhuang Enping thinks: “The Chengshan Group must also prepare a plan to negotiate with Cooper to solve the problem. On the one hand, it can be acquired by the Chinese shareholder, and on the other hand, it can also find a buyer that they trust to purchase Chengshan Cooper. Foreign equity.

It is now the best time for a joint venture of Chengdu-Copenhagen for eight years. It is also the largest and best company among the 8 factories in the Cooper tire family. Chengshan Cooper was established in early 2006. Chengshan Group took the lead of Ganden as a supporting role, taking advantage of the tire industry. It has established a joint venture company with the second largest tire company in the United States and the world's eighth largest US company, Cooper Tire & Rubber Co., Ltd., looking forward to relying on it. Foreign technology, management, and market factors will make the tire industry bigger and stronger. However, the effect is not as expected, and the joint venture has not been smooth.

Since the establishment of the joint venture company for more than seven years, it has been in a state of constant running-in. The differences in the culture, values, business methods and lifestyles of both parties have become the bottleneck restricting the development of the company. Cooper made a joint venture seven years and paid a heavy price. Because the culture broke through in the bumps, the accumulated profit before tax for the first 4 years was 77.24 million US dollars (the annual profit of the Chinese Chengshan Tire before the joint venture was more than 29.26 million US dollars), and the company changed to five general managers in 4 years; Performance was improved and the profit before tax was US$217.73 million.

Among Cooper's eight companies, apart from Chengshan Cooper, the other seven are mostly in losses. Just Chengshan Cooper alone accounted for more than 30% of Cooper's global profits. At this time, choosing to sell Apollo as a whole was also due to the highlights of the Chinese business, which also became a selling point for Cooper shareholders.

If Chengshan Cooper’s shares are sold directly to Chengshan, for the time being, it wouldn’t be too difficult to deal with the remaining assets. On the contrary, if Chengshan Group acquires Chengshan Cooper China's shares at this time, Cooper's asking price will certainly not be low. This also became the biggest problem for Chengshan to acquire Chengshan Cooper’s Chinese stake. "The best way to recover it at a reasonable price is on the premise that Cooper can't ask for prices." Dong Zhaoqing said.

In contrast, Apollo had previously offered Cooper a high price. According to the previous agreement between the two parties, Apollo Tire will acquire Cooper Tire in cash through its wholly-owned subsidiary, with a total transaction volume of approximately US$2.5 billion. In the past five years, the average pre-tax profit of Cooper Tire was only 100 million U.S. dollars. Apollo, whose market value is only 600 million U.S. dollars, plans to borrow 450 million U.S. dollars from the bank, and Cooper Tire has raised 2.1 billion U.S. dollars from issuing bonds and bank loans.

“Unless there is an equivalent price for Chengshan, there is no reason for Cooper to sell to Apollo.” Zhuang Enping also believes. In fact, in this transaction, Cooper President Roy Armes, through this transaction, can benefit about 21 million US dollars. This is also the main reason why Roy Armes insists on selling Cooper even though it has encountered many obstacles.

Roy Armes and President of Chengshan Group met in Beijing on July 10th. Cooper stated only one proposal, that is, the acquisition case will continue, and stated that after being acquired by Apollo, it would be beneficial to the expansion of COOPER's business, and the management and business development of the company will not occur. Changes, as well as high debt, will not affect the company's operations.

"If Apollo still insists on acquisitions, it must be prepared mentally. In addition, as a party to the acquisition, it must make promises for the acquisition and it must honor its promise in the future." Zhuang Enping said.

This is also a lesson learned from overseas acquisitions by Chinese companies. The contradictions of the previous period can be resolved through the efforts of the acquirer, fearing that the acquirer is not sincere and unwilling to solve the problem.

Before this, when Geely acquired VOLVO, it also encountered VOLVO union resistance, but Li Shufu, chairman of Geely Group personally went to VOLVO headquarters in Sweden, proposed that after the acquisition "Geely is Geely, VOLVO is VOLVO" and does not interfere with VOLVO operations, at the same time Presented a commitment to VOLVO's continued investment. Later, after VOLVO Sweden resumed production, it recruited 1,500 employees who had been dismissed. Well pacified the acquiree.

Compared with Geely, Apollo was outside. Even under the pressure of the union, Apollo began to shake. After President Apollo was absent from the tripartite negotiations on July 12th, there has been no positive statement. It was just a matter of talking with Cooper, saying that the acquisition was suspended and that Cooper would deal with the “housework affairs” before proceeding with the acquisition.

"Even if you buy hard at the moment, the next step in Apollo's integration is unfavorable," Zhuang Enping said. "The problems encountered in the acquisition process will not be solved actively. Even after the acquisition, it will become an obstacle."

So before the acquisition of Ssangyong SAIC, in the course of business, has repeatedly encountered Ssangyong trade union strike, and ultimately can only withdraw. In fact, Apollo’s acquisition of Cooper was not favored. As soon as this transaction was announced, Indian credit rating company CRISIL lowered its long-term credit rating on banking facilities and other bond plans from “CRISIL AA” to “CRISIL A” and on a short-term basis. The credit rating was lowered from "CRISILA1" to "CRISILA1". It also revised its rating outlook from "stable" to "negative."

According to The Economic Times (Mumbai, India), Apollo’s BSTO24% institutional investors are seeking dialogue with management in the hope of reconsidering a $2.5 billion cash transaction, considering the high debts of the acquisition of Cooper tires. . Investors think that companies have paid too much for mergers and acquisitions and the corresponding damage value has also appeared. After the announcement of the acquisition, the shareholder value lost 15 billion rupees. As a result of this acquisition, Apollo shares fell from the highest value of 102.45 rupees to the lowest point of 54.6 rupees.

Zhuang Enping thinks: “Apollo seems to have resigned from the frustration of the capital market and the resistance of the trade union of the acquired party.”

 

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