Cooper Tire and Rubber Co. says it is assessing its options after an arbitrator blocked the sale of two of its plants to Apollo Tyres Ltd. The arbitrator upheld two grievances filed by the United Steel Workers (USW) in a ruling issued on September 13.
The arbitrator's decision recognized the "successorship clause" in the USW's labor agreements with Cooper applied to the transaction, according to a press release issued by the union. The arbitrator ordered Cooper to put the sale of its plants in Findlay, Ohio, and Texarkana, Ark., on hold until Apollo and the USW can reach collective bargaining agreements covering about 2,500 USW members.
The ruling came despite Cooper's assurance the collective bargaining agreements would continue after the merger. In a June 12 press release, the company stated it "will continue to recognize the labor unions and honor the terms of collective bargaining agreements presently in effect while generally maintaining compensation and benefit levels for non-union employees."
The USW says its members are concerned about the debt that will be placed on Cooper. In June, Cooper agreed to be acquired by Apollo in an all-cash transaction valued at approximately $2.5 billion. Apollo is borrowing the $2.5 billion purchase price.
The USW likely wants to see Apollo invest a certain amount of capital in the plants, according to Nick Mitchell, senior vice president of research for Northcoast Research Holdings LLC based in Cleveland, Ohio, and MTD columnist.
"I think the issue boils down to the USW wanting to know Apollo is committed to maintaining U.S. manufacturing at the same level as Cooper. One way is through capital improvement investments to keep the plants competitive," says Mitchell.
Cooper said it is "assessing its options related to this decision" in a SEC filing on Sept. 19. Spokespeople from both companies confirmed intentions to continue talks with the USW.
"Apollo and Cooper are continuing discussions with the USW with the aim of reaching an amicable resolution," says Anne Roman, vice president of corporate communications for Cooper.
"Apollo looks forward to working with Cooper and the USW to resolve this matter. The strategic merits of Apollo's combination with Cooper are clear," says Apollo spokesperson Rohit Sharan.
Cooper does not expect the ruling to delay the close of the deal. "We are moving forward with the transaction and expect to close within our original timetable, by the end of 2013," says Roman.
Concern over debt also is behind labor tensions at Cooper 's passenger and truck tire plant in Rongcheng, China. According to The Courier in Findlay, Ohio, workers at the Chinese plant "are skeptical of the financial underpinnings of Apollo's proposed $2.5 billion acquisition."
After a strike to protest the deal, manufacturing employees returned to work, yet are producing only non-Cooper tires, according to Roman. "Regarding the labor action at Cooper Chengshan (Shandong) Tire Company, Cooper's joint venture in Rongcheng, China, Cooper continues to communicate with the union, the workers and the JV partner with regard to returning the Rongcheng plant to full operation as soon as possible."
The seven-year-old Rongcheng plant, located in China's Shandong Province, is a joint venture between Cooper (the majority owner at 65%) and Shandong Chengshan Group Co. Ltd. Chengshan Group opposes the Apollo-Cooper merger and filed a lawsuit to dissolve the joint venture.
Roman says, "As to the lawsuit filed by the JV partner, Chengshan Group, to dissolve the joint venture, it has been reported that the hearing in Weihai Intermediate Court has been postponed to an undetermined date. Cooper believes the lawsuit is without merit and will defend vigorously against it."
