(The author is a Reuters Breakingviews columnist. The
opinions expressed are his own)
By Jeffrey Goldfarb
NEW YORK, Oct 9 (Reuters Breakingviews) - A cross-border
tire deal could deflate the appeal of joint ventures in China.
The complaint filed last week by Cooper Tire & Rubber
against its agreed Indian buyer, Apollo Tyres, is only
half the story. A legal spat raised by the U.S. group's minority
partner in China could unravel a venture there. For
multinational corporations with shared Chinese operations, it's
the case to watch.
Immediately after the $2.5 billion transaction was announced
in June, workers at Cooper Chengshan Tire went on strike. Such
stoppages have become more common in China, though they usually
relate to pay or work conditions. In this case, the laborers say
they're worried about the amount of money Apollo is borrowing
and cultural divisions with India.
The story doesn't entirely add up. For one thing, according
to court documents, Apollo told Cooper it believes the minority
shareholder in the venture, Chengshan Group, arranged the
strike. The Chinese union also took the unprecedented step of
placing advertisements in the Wall Street Journal questioning
the deal. Based on the published rate cards, the amount spent on
those ads would have equaled roughly a week's worth of wages for
1,200 factory employees.
It also isn't hard to imagine that Chengshan Chairman Che
Hongzhi, a "highly influential" figure in the Shandong region,
according to Cooper's court filing, might be experiencing
seller's remorse. In 2010, Cooper bought another 14 percent of
the venture for $18 million, increasing its stake to 65 percent.
The Financial Times reported that the venture accounted for
about a quarter of Cooper's revenue and profit last year. That
implies Che's remaining holding could be worth some $200
Cooper's representatives have been blocked from entering the
factory. Under terms of the partnership, the U.S. company is
supposed to be able to buy out Chengshan in the event of a
disagreement or seek arbitration in Hong Kong. However,
Chengshan recently won a ruling in Weihai to keep the dispute's
resolution local and is proceeding with a court claim to
dissolve the joint venture.
If Che succeeds in bypassing the venture agreement, it would
be a real eye-opener for foreign companies in China. Two years
ago, Nestle paid $1.7 billion for a 60 percent stake in
confectioner Hsu Fu Chi. General Electric, Daimler and other
large companies also have ventures in the country. For Apollo,
the Cooper deal ultimately hinges on its ability to win over
unhappy U.S. workers. For outsiders, the China dispute is where
the rubber could meet the road.
- Cooper Tire & Rubber on Oct. 4 filed a complaint against
Apollo Tyres in a Delaware court, seeking to compel its Indian
buyer to accelerate plans to close the deal. The $2.5 billion
transaction faces grievances from U.S. steelworkers and factory
workers at a Cooper joint venture in China.
- The disputes have led to a disagreement over the
negotiated price of $35 a share.
- "Cooper has acknowledged to Apollo that some price
reduction is warranted. The issue now is by how much," Apollo
said in a statement on Oct. 6.
- Cooper said the labor disagreements are part of the risks
Apollo assumed when it entered the merger agreement.
- Cooper complaint: r.reuters.com/tav63v
- Reuters: Apollo, Cooper disagree over $2.5 bln deal as
- For previous columns by the author, Reuters customers can
(Editing by Peter Thal Larsen and Katrina Hamlin)