By LOU WILIN
Cooper Tire & Rubber Co. will end or mend its fractured partnership in a Chinese factory, which helped thwart completion of Cooper’s attempted sale to Apollo Tyres of India.
Cooper and Chengshan Group announced an agreement Friday that will allow each company to buy the other’s interest in the factory, or keep the current structure in which Cooper owns 65 percent.
In any event, Cooper will keep earning profits in the world’s fastest-growing tire market, Chief Executive Officer Roy Armes said.
If Cooper sells its interest, it will acquire a warchest of at least $283 million to invest elsewhere, said Keith Moore, managing director and event-driven strategist for MKM Partners, Stamford, Conn.
An independent valuation firm may decide Cooper’s interest is worth even more, and Cooper would receive more.
Cooper would have “added flexibility to enter into acquisitions, new offtake relationships, or possible greenfield development of additional production capacity anywhere around the world to support the expansion of our business,” Armes said.
The Chinese plant will have to keep making Cooper-brand products for at least three years, too, Cooper said.
If Cooper buys Chengshan’s minority interest, worth at least $152 million, “We will have the certainty of a wholly-owned asset with an experienced team in place that will continue our China growth strategy,” Armes said.
Either way, Cooper will keep employing sales, marketing and technology forces in China, and retain its other Chinese factory, Cooper Kunshan Tire Co. outside Shanghai, he said. Cooper is the sole owner of that one.
Cooper Tire’s partnership with Chengshan Group went awry last year when Cooper Chengshan Tire Co. and its unionized workers sabotaged the sale to Apollo. The Chinese plant stopped producing Cooper-brand tires and withheld the plant’s financial information from Cooper Tire leaders.
Without the financial information, Cooper Tire could not release information about its performance in the third quarter of 2013. That in turn prevented lenders from releasing financing that Apollo needed to buy Cooper.
Since the Cooper-Apollo Tyres deal unraveled, Chengshan has been giving Cooper financial information and is preparing to resume production of Cooper-brand tires.
On Friday, Cooper said the partners have agreed to steps to set the Chengshan plant’s future. For either Cooper or Chengshan to buy out the other partner, Cooper must first file its third-quarter 2013 financial information by March 3, 2014, and its fourth quarter and full-year 2013 information by March 14, Cooper reported to the Securities and Exchange Commission.
Some time after the financial reports are filed, an independent firm will help determine the Chinese plant’s value. Both partners have already agreed the business is worth at least $435 million. If the independent valuation firm sets a higher value, that will prevail.
Once the value is set, Chengshan will have the first option to buy Cooper’s 65 percent interest, at least $283 million, or sell its 35 percent interest to Cooper. If Cooper would buy the Chengshan interest, it would spend at least $152 million.
Chengshan has 45 days to exercise its option to buy or sell. If it does neither in those 45 days, then Cooper has 45 days to buy Chengshan’s stake. If Cooper does not, then the joint venture will continue under its current ownership arrangement.
Moore called the agreement “a minor positive” for Cooper Tire.
“It’s good in that they have to resolve the issue and good they will get the financials (reported),” Moore said.
Of the financial reports, he added, “I think they will be very ugly.”
Cooper Tire still faces a lot of uncertainty, Moore said.
Its stock rose 2.45 percent on Friday.
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