Cooper Tire pension fund objects to Apollo's takeover

Apollo Tyres is facing the heat over its $2.5 billion takeover not only from its own shareholders but also from the pension funds of Cooper Tire employees.

The Cooper Avon Tyres Pension Trust has alleged that the acquisition of Cooper Tire would be materially detrimental to the pension plan and contacted the relevant pension regulator seeking higher payments to the fund.

The UK Pension Trustee has intimated Apollo that unless it receives certain assurances, including in the form of special contributions, an acceleration of recovery plan contributions or provision of guarantees and security, it would exercise its moral hazard powers.

In simple terms, moral hazard power relates to a contribution notice (CN) or a financial support direction (FSD) which the regulator issues to pay a set amount of money to the pension scheme. An FSD, on the other hand, requires a target to put forward a proposal of longer-term financial support for the scheme. This support could be in a number of different forms, such as cash, a guarantee or other security arrangements. Any proposal requires a regulator’s approval before it is put in place.  The regulator can only issue a CN or FSD where it believes that it would be reasonable to impose the liability.

In a communication to Cooper dated October 4th, Apollo has said that it asked for but has not yet received the correspondence between Cooper and the UK Pension Trustee and is “very concerned” based on the tone of the most recent letter as Cooper has once again sought to conceal the true state of affairs confronting the company from the parent parties.

The same letter has alleged the financial performance forecast of the American company deteriorated consistently within a few weeks of the $2.5-billion deal announcement in June.

From court documents, Apollo says on September 17, Cooper provided a new account of its financial situation, forecasting a nearly 33% decline in operating profit for September from the forecast delivered only days earlier.

“Now, we have just received yet another story of the company’s third quarter forecast and this one reveals the most troubling shortfall yet — $3.4 billion in revenues and $257 million in operating profit for 2013. In other words, 2013 revenues and operating profit as projected in July were 25% and 48% higher than your current estimates,” goes a letter dated October 4 sent to Cooper by Apollo.

Apollo was trading at Rs 67 a share on the BSE. The stock has lost a quarter of its value since the company announced the jinxed deal with Cooper Tire.