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Chris DeMuth Jr.
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"It's not given to human beings to have such talent that they can just know everything about everything all the time. But it is given to human beings who work hard at it - who look and sift the world for a misplaced bet - that they can occasionally find one." - Charlie Munger I look... More
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  • drew111
    , contributor
    Comments (357) | Send Message
     
    To arbitrage or not to arbitrage, that is the question. No really, I'm completely on the fence on this one.
    5 Oct 2013, 05:44 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4040) | Send Message
     
    Author’s reply » Me too. The buyers look as if they are teeing up a MAC argument.
    5 Oct 2013, 06:20 PM Reply Like
  • Special Situations and Arbs
    , contributor
    Comments (538) | Send Message
     
    Maybe so. As a long my thinking is: I obviously hope the deal doesn't break but if it does it can lead to an artificially low price in the short term with a flood of arbs' shares going out the door at the same time. Wonder if Paulson's 5 million shares would be for sale..
    5 Oct 2013, 07:06 PM Reply Like
  • Special Situations and Arbs
    , contributor
    Comments (538) | Send Message
     
    http://on.mktw.net/15e...
    Apollo statement
    6 Oct 2013, 11:28 AM Reply Like
  • arbtrader
    , contributor
    Comments (170) | Send Message
     
    The key para is the part about delivering updated financials. No financials, no close. I'm not going to pretend if that is a MAC but you can't close a deal if one of the material representations of management is unable to be produced. That is far more than a simple 'labor dispute' and is going to be a focus.
    BTW thanks for the statement. For some reason not well distributed. AT
    "Additionally, Apollo has asked Cooper to confirm that Cooper has sufficient control over and access to its majority-owned subsidiary in China to permit it to deliver current consolidated financial information and auditors' comfort letters and that Cooper is in compliance with covenants and representations in the merger agreement. To date, Cooper has been unable or unwilling to provide these confirmations. Cooper's inability to access the facilities of its Chinese subsidiary, to determine what products this subsidiary is producing or to whom those products are being sold, to track or control how its funds are being spent or even to access operating or financial information, either physically or remotely, goes well beyond any typical work stoppage. Cooper has misrepresented its management and control of this asset to Apollo and to its own shareholders. While Apollo continues to be supportive of Cooper's efforts to establish control over its subsidiary's operations and to assert Cooper's rights against its JV partner, Apollo cannot be responsible for Cooper's failures to do so."
    6 Oct 2013, 01:15 PM Reply Like
  • Wilson Wang
    , contributor
    Comments (818) | Send Message
     
    Not long CTB anymore?
    6 Oct 2013, 01:41 PM Reply Like
  • Special Situations and Arbs
    , contributor
    Comments (538) | Send Message
     
    Wilson are you saying you aren't long anymore or asking others? Hard to tell what you mean. I am still long
    6 Oct 2013, 01:47 PM Reply Like
  • Wilson Wang
    , contributor
    Comments (818) | Send Message
     
    I'm asking Chris. Sorry for the confusion!
    6 Oct 2013, 11:20 PM Reply Like
  • Special Situations and Arbs
    , contributor
    Comments (538) | Send Message
     
    http://on.ft.com/GCZi6g
    Cut price of deal, Apollo tells Cooper
    6 Oct 2013, 05:20 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4040) | Send Message
     
    Author’s reply » They were close to re-cutting to around $32.50 before the USW decision which offered Apollo a merger agreement out at which point Apollo had leverage and tried for $26-27. So the bid is $26.50 or so and the ask is $32.50 or so. If Apollo is careful, there could be scope to try for a re-cut around $30; the problem is that they will struggle to hang onto financing. Meanwhile, CTB had to sue in order to preserve their rights under the merger agreement, which would otherwise have expired when the ball drops on 2013.

     

    I had a blog post prepared called "When the Ball Drops on Cooper", but was asked to not write it as it could have been counterproductive before the suit was filed. Apollo is under pressure because of their stock's weakness and because of the nature of this deal in which a small company is using so much leverage to buy a larger one.
    6 Oct 2013, 05:27 PM Reply Like
  • Special Situations and Arbs
    , contributor
    Comments (538) | Send Message
     
    Thanks for sharing your thoughts.

     

    To me the question is what is the downside of holding CTB here?
    So if a ballpark bid-ask is 26.50-32.50 for a completed buyout what if the deal breaks? Is there a price where Cooper becomes a screaming buy either because their business is undervalued vs peers (GR), or there's a likelihood that they attract another offer from a past interested party or newcomer?
    6 Oct 2013, 06:43 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4040) | Send Message
     
    Author’s reply » These are the right questions and I like to start with a high ratio of questions to guesses at the answers, so I don't want to say too much, but the fundamental downside of holding CTB here (defined as the low to mid $20s when it opens Monday) is minimal. It has become increasingly safe. It is undervalued versus GT. It is certain that they will attract a new plan, whether or not that is in the form of another bid. One plan will entail shareholders pushing to replace the board and management and then executing a leveraged public recapitalization. It is a key data point that CTB was going to support most of this deal's debt. They still can.
    6 Oct 2013, 06:51 PM Reply Like
  • Wilson Wang
    , contributor
    Comments (818) | Send Message
     
    If the deal falls through. The Chinese JV's relationship has been severely damaged. Coming from my sources, the JV partners will most likely want certainty from Cooper management that something like this won't ever happen again.

     

    This long and tedious process could hurt revenue and profits. Just food for thought.
    6 Oct 2013, 11:19 PM Reply Like
  • givemeashout
    , contributor
    Comments (3) | Send Message
     
    didn't the vote lock in $35, how would they be able to reduce now after a vote has been taken...and doesn't it count as a breach of the contract on Apollos part if they demand an adjustment? Just wondering thanks:)
    6 Oct 2013, 11:52 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4040) | Send Message
     
    Author’s reply » A new price would require a new vote. If the contract is already breached, they can ask for a new deal at a new price.
    8 Oct 2013, 07:24 AM Reply Like
  • givemeashout
    , contributor
    Comments (3) | Send Message
     
    sounds like CTB is holding their ground at $35
    http://bit.ly/GGOi81
    7 Oct 2013, 03:18 AM Reply Like
  • Special Situations and Arbs
    , contributor
    Comments (538) | Send Message
     
    Chris-

     

    I think the below article is what your daily blog, 'Seeking Truth fom Facts' is all about. Look at the headline and first sentence. Imagine investing off these 'facts'.

     

    Cooper Tire & Rubber Shares Plunge 12% As It Agrees To Price Cut With Apollo
    By RTT News, October 07, 2013, 11:16:00 AM EDT

     

    Cooper Tire & Rubber Shares Plunge 12% As It Agrees To Price Cut With Apollo

     

    (RTTNews.com) - Shares of Cooper Tire & Rubber Co. (CTB) are plunging 12 percent on Monday after news emerged that the replacement tires maker has agreed to concessions on the total consideration for its acquisition by Indian tire company Apollo Tyres Ltd. However, the companies are unable to reach an agreement on the amount of concession.

     

    Apollo Tyres has asked Cooper Tire to reduce the price consideration by more than $2.50 per share in view of the labor issues in US and hurdles at Cooper Tire's joint venture in China.

     

    On Friday, Cooper Tire moved Delaware Chancery Court asking that subsidiaries of Apollo Tyres Ltd be compelled to expeditiously close the pending merger in accordance with the terms of the definitive merger agreement. Cooper alleged that Apollo is deliberately delaying the labor agreement with the United Steelworkers or USW union inorder to re-negotiate a better deal.

     

    Cooper Tire stockholders voted overwhelmingly to approve the pending merger on September 30, satisfying Cooper Tire's final affirmative condition under the merger agreement to close the deal.

     

    "Cooper has an obligation to protect the rights of our stockholders, who voted overwhelmingly in favor of the merger. With their approval, we have met our conditions for closing. The complaint filed today is a necessary step in the process to assure that the terms of the merger agreement are met as required and that we do everything possible to get the transaction closed promptly," Cooper Chairman, President and CEO Roy Armes stated.

     

    Findlay, Ohio-based Cooper Tire agreed in mid-June to be acquired by Apollo Tyres for $35 per share in an all-cash deal valued at about $2.5 billion to create the seventh-largest tire company in the world that will have a significant presence in the world's three largest automotive markets - the U.S., Europe and China.

     

    The deal that was struck at a 43 percent premium was unanimously approved by the boards of directors of both companies. Apollo expects the transaction to be immediately accretive to its earnings.

     

    However, the deal, which is expected to close within the second half of 2013, has met with delays due to material impacts expected from the pending finalization of a labor contract with the USW union. The USW represents Cooper employees at facilities in Findlay, Ohio and Texarkana, Arkansas.

     

    Apollo stated that it is willing to make material concessions to the USW to finalize the contract, subject to arranging for additional financing or financial concessions from Cooper Tire. Apollo has engaged actuarial advisers to evaluate the financial impact of certain of the USW's requests.

     

    Meanwhile, Cooper Tire has acknowledged to Apollo that some price reduction is warranted, but the issue now is by how much. On top of the USW issue, Cooper Tire has breached material representations and covenants, including with respect to its majority-owned China subsidiary due to the fact that Cooper Tire has no control over the subsidiary or access to its books and records.

     

    Apollo and its financing banks, Morgan Stanley, Deutsche Bank, Goldman Sachs and Standard Chartered Bank, are justified under the merger agreement to request that Cooper Tire provide updated financial statements and guidance in light of the significant and unanticipated costs that go well beyond those Apollo is obligated to bear under the merger agreement.

     

    "Apollo is an outstanding company. We are confident both organizations will work effectively together to take advantage of the many opportunities this compelling transaction will offer within the world's largest tire market of North America as well as the fastest growing geographies including China and India," Armes added.

     

    In Monday's regular trading session, CTB is currently trading at $25.97, down $3.54 or 12.00% on a volume of 8.87 million shares. In the past 52-week period, the stock has been trading in a range of $18.38 to $34.79.

     

    Read more: http://bit.ly/1ahMrPC
    8 Oct 2013, 12:46 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (4040) | Send Message
     
    Author’s reply » Exactly! Why I like to focus on primary sources; otherwise I spend most of my energy untangling such articles.
    8 Oct 2013, 07:24 AM Reply Like
  • arbtrader
    , contributor
    Comments (170) | Send Message
     
    Wow. Journalism it is not. Esp w Merger news you have to consider the source. Good post. AT.
    8 Oct 2013, 07:07 AM Reply Like
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