This decision involves a merger agreement (the “Agreement”) between Apollo (Mauritius) Holdings Pvt. Ltd. and Cooper Tire & Rubber Company (“Cooper”), a principal purpose of which was for Apollo to acquire Cooper’s 65% interest in Chengshan Cooper Tires (“CCT”), a Chinese tire manufacturer. After the merger was announced, the minority owner of CCT apparently caused CCT’s union workers to go on strike by telling them that if they did not protest, they would be fired. The minority partner also prevented Cooper from getting access to CCT’s financial records, which made it impossible for Cooper to prepare and deliver financial statements for the third quarter of 2013 as required by the Agreement. Apollo refused to consummate the merger and sought a judicial declaration that its refusal was not a breach of the Agreement because Cooper had not satisfied several conditions to closing.
Vice Chancellor Glasscock agreed that Apollo was not required to carry out the merger because Cooper had not satisfied some of the conditions to closing. Among other things, he found that the strike at CCT violated a Cooper covenant to cause each of its subsidiaries to “conduct its business in the ordinary course of business consistent with past practice.” Cooper argued that an exception to the definition of “Material Adverse Effect” for a negative reaction to the Agreement by Cooper’s labor unions or joint venture partners also applied to the covenant to cause all subsidiaries to conduct their businesses in the ordinary course, but Vice Chancellor Glasscock rejected this argument, pointing out that even within the definition of Material Adverse Effect, there were some things (events that would prevent Cooper from fulfilling its obligations under the Agreement or from consummating the merger) that were not subject to the exception.
Another argument that Cooper made is that by attempting to negotiate terms on which the minority owner of CCT would withdraw its opposition to the transaction, Apollo acquiesced in proceeding with the merger despite what the minority owner was doing. Vice Chancellor Glasscock rejected this argument, saying that Apollo was negotiating with the minority owner in an effort to make it possible for the merger to proceed.