Cooper Tire Could Use A New Buyer

Oct.10.13 | About: Cooper Tire (CTB)

Cooper Tire & Rubber Co (CTB) and the recent merger woes with Apollo Tire of India are presenting quite the value opportunity for prospective suitors or value orientated individual investors.

Here is a quick background from June to September of this year. Apollo Tire made a bid to buyout the company in early June for around $35.00/share. At that time Cooper was trading in the mid twenties and was looked like a good deal for both companies. For Apollo, the proposed purchase price was only slightly lower than 9x 2012's after tax earnings. For the Cooper shareholders, this price meant a premium of well over 25% of the current share price. Immediately following the announcement the stock spiked and then leveled off to between $30-$35/share through the middle of September.

Since the end of September everything has gone off track with the buyout. The United Steelworkers Union in the US created issues early on by saying the wanted to reach collective bargaining agreements with Apollo before the transaction occurred. An arbitrator has agreed with them and is barring Cooper from selling two of its union plants until deals are made with Apollo management. Meanwhile, In China, one of Coopers plants is striking, fearing job security if the transaction with Apollo occurs. With all of this going on Apollo is trying to get Cooper to lower the purchase price of the deal and the only way this would occur is if Cooper took a new deal back to its shareholders and approved it. Cooper doesn't seem to be considering this option since they the just recently filed a suit claiming Apollo was aware of these types of risks, and is now dragging their feet to lower the purchase price. Apollo does seem to be dragging their feet and in the big scheme of things both of these issues should hardly be deal breakers.

From a value perspective Cooper is looking like a good buy at $35.00/ share. This price per share values the company at right around $2.2B and that is, as previously mentioned; is less than 9X the companies 2012 after tax earnings. If you consider just the average after tax earnings since 2009 the $2.2B purchase price works out to be about 11.4X after tax earnings with a company who has grown revenue over 33% in the same time period. Any suitor would hardly be overpaying at this price considering these numbers. Once you consider the cost savings the economies of scale can bring the combined entity, the deal seems like a no-brainer.

Cooper's shares finished trading yesterday at just shy of $26/share with all this doom and gloom news about the negative prospects of the Apollo transaction. Frankly, this makes no sense to me. The company is reasonably priced at $35.00/share considering a buyout and at $26/share it is a steal for the individual investor who wants to own a good company at a great price. I think the company should not budge on the purchase price originally agreed upon with Apollo because you never know what others suitors may be taking notice of Apollo's missteps. Other suitors could include anyone searching for good value from Warren Buffett to Carl Icahn or other current competitors looking to increase economies of scale at a great price like Goodyear (GT) or Bridgestone (OTCPK:BRDCY). Furthermore, Cooper shareholders have made the deal pretty easy for other suitors and already approved it at $35/share.

Disclosure: I am long CTB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.