NEW DELHI -- Shares of India's Apollo Tyres rocketed by 8% today on investors' hopes that the company would walk away from a $2.5 billion debt-funded deal to buy U.S.-based Cooper Tire & Rubber.
The proposed merger between Apollo Tyres Ltd. of India and the much larger Cooper Tire & Rubber (IW 500/225) would create the world's seventh-largest tire maker by revenue.
But the transaction has become bogged down in labor problems embroiling Cooper's U.S. and Chinese operations, lack of financial information about Cooper's Chinese venture, and a worsening performance by Cooper's U.S. tire business.
The merger agreement, signed in June, is valid up to Dec. 31, after which Apollo can drop the deal.
"The stock rose on the assumption that the company will walk away from the Cooper deal, which [would] be a big positive for it," said Kishor Ostwal, managing director at Mumbai's CNI Research.
Neither side has said they are giving up on the merger.
But Mumbai's Ambit Capital brokerage said in an investors' note that if the acquisition falls through, "this could be significantly positive for Apollo shareholders."
Shares of Apollo Tyres climbed 8% to 100.90 rupees on the Bombay Stock Exchange today.
Cooper Tire shares were down 1.2% at $21.75 in New York in pre-market trade -- far below Apollo's offer in June of $35 per share.
Apollo shares have surged 25% in seven trading sessions since it announced that the U.S. Delaware Supreme Court had ruled in its favor in its legal wrangle with Cooper Tire.
The takeover bid would be India's biggest of a U.S. company and has been seen as another sign of growing Indian interest in overseas acquisitions.
But the deal landed in U.S. court over charges by Cooper that Apollo was delaying the transaction to wrestle down the offer price and was suffering from "buyer's remorse."
Apollo denied the allegations but conceded it would be tough at the initial offer price to find lenders to finance the deal due to Cooper's problems.
Apollo insisted last week that it continues to believe in the merits of the transaction. If a deal is clinched before the Dec. 31 deadline, it would likely involve a significant cut in the offer price, analysts say.
But in a sign it may be giving up on the transaction, Cooper said on Dec. 20 that it "intends to pursue this case as an action for damages."
Indian analysts were unhappy about Apollo's bid, saying it was paying too much for the U.S. company and would be overloaded with debt.
Analysts have compared the proposed acquisition to a minnow swallowing a whale. Apollo had annual revenue of $2.5 billion in 2012 while Cooper's revenue totalled $4.2 billion.
Copyright Agence France-Presse, 2013