Cooper management issues statement to investors
The following are excerpts from a webcast provided today as a resource to news media. The moderator was Cooper Tire and Rubber Co. CFO Brad Hughes. With him was the company's CEO, Roy Armes.
The webcast began with a required qualifier from Hughes: "I want to remind you that today you may hear forward looking statements related to the future financial results and business operations of Cooper Tire & Rubber Company. Our actual results may differ materially from current management forecasts and projections."
Armes: "As you know or are aware by now, we announced earlier this morning that Cooper has terminated the merger agreement with Apollo Tyres.
"This was, of course, a difficult decision for us to make as a business combination with Cooper and Apollo is compelling for many reasons. At the same time, despite the significant efforts and resources we have applied to making this merger happen, it is a reality that the agreement both companies signed on June 12 will not be consummated by Apollo. Further, we have been notified that financing for the transaction is no longer available.
"As a result, the right thing for Cooper at this time … for our customers … for all of our employees worldwide … and for our stockholders … is to terminate the merger agreement and focus on continuing to build our business. You know, we went into this merger in a strong position, and as we exit this agreement, Cooper remains a strong company. Our business model—which has evolved over the past few years into a stronger, more resilient and sustainable model—remains solid. Following a record year of sales and earnings in 2012, we posted record operating profit through the first half of 2013 ...
"… Addressing the issues at CCT joint venture in Rongcheng, China is our top priority in the near term. The situation there was driven by the merger agreement and with the agreement now terminated; Cooper is working independently to restore normal operations at CCT. This includes obtaining the information needed for Cooper to resume regular financial reporting as soon as possible. Once the situation at CCT is resolved and regular financial reporting has resumed, Cooper will be in a position to address additional options for the deployment of capital targeted at returning value for our stockholders.
"Regarding ongoing litigation with Apollo, Cooper will continue to exercise our legal options as appropriate to protect the interests of our company and our stockholders, but this will not take our focus away from running and building our business ...
" … I want to address one topic that I have been asked about many times … that is, whether the litigation with Apollo, and now the termination of the deal, could have been avoided if a reduced share price were negotiated between Cooper and Apollo.
"There has been much speculation on this, so I want to set the record straight. Cooper never received a proposal from Apollo to reduce the share price that included committed financing or that did not come with unreasonable risk for our company and our stockholders."
At this point, Hughes provided some answers to common questions. (Questions are in bold.)
What is Cooper’s plan to resolve the issues with CCT? When will CCT return to normal and when will you start filing financials again?
Hughes: "...Addressing the situation at CCT is our top priority right now. The challenges there were driven by the merger agreement, and with the agreement now terminated, we are hopeful that our work to restore normal operations, including obtaining the information needed for Cooper to resume regular financial reporting as soon as possible, will be more effective."
Is Cooper still in discussions with Apollo and are you open to working on another agreement with them?
Hughes: "As always, we are focused on maximizing value for our stockholders. In this regard, we are open to all potential paths, including possible business combinations that further our strategy—that’s always been the case and will continue. Frankly, though, until we address the situation at CCT and restore regular financial reporting for Cooper, we do not believe this is something that can be pursued in any meaningful way."
Would Cooper consider another acquisition or merger down the road with someone else?
Hughes: "… we are focused on maximizing stockholder value. As such, we are always open to potential business combinations if they drive stockholder value and align with our strategies. That was the case before the Apollo deal and it remains the case today. Again, until the CCT situation is resolved, this is not something we are focusing on …"
Will Cooper continue to pursue the litigation before the Delaware Chancery Court? Is Cooper pursuing damages?
Hughes: "We believe Apollo has breached the merger agreement, and given this, we will continue to pursue the appropriate legal steps to protect the interests of our company and our stockholders. This includes pursuing damages. Having said this, these legal actions did not prevent us from very actively engaging and negotiating with Apollo to work things out and close the deal … we’ve had countless meetings and conversations with Apollo—up until very recently."
How do you anticipate the United Steelworkers will react to the termination of the merger agreement? What happens with the USW contracts?
Hughes: "In November, union membership ratified two versions of amendments to their existing labor agreements—one if the merger did not take place and one if the merger closed under the terms of the agreement signed on June 12. With the merger agreement now terminated, the amendments ratified if the deal did not close are in effect. We believe these amendments are mutually beneficial to the company and the USW and we expect to continue productive relations with the union."
Armes: " … Cooper is pleased to be in the position to have a strong, profitable company, a solid business model, and a strategy that we are excited about pursuing as we enter 2014, our company’s 100-year anniversary. Now that the merger agreement with Apollo is terminated, we need to get the situation at CCT resolved and restore regular financial reporting. Then, as always, we will continue building our business and pursuing the paths and actions that we believe will deliver value for our stockholders."