(c) 2013, Bloomberg News.

(c) 2013, Bloomberg News.

WILMINGTON, Del. Cooper Tire & Rubber Co. said Monday it's dropping plans to be bought by India's Apollo Tyres Ltd., citing lack of financing for the transaction, and will seek damages. Apollo said it's disappointed and will also sue.

The U.S. manufacturer "will continue to pursue the legal steps necessary to protect the interests of our company and our stockholders," Findlay, Ohio-based Cooper Tire said in a statement. It's seeking a $112.5 million "reverse termination fee," Chief Financial Officer Brad Hughes said in a conference call Monday.

The proposed merger had been on the rocks for months. Cooper said on June 12 that Gurgaon-based Apollo planned to buy the U.S. tiremaker for $35 a share in a $2.5 billion deal, then in October it initiated legal action to force completion of the purchase, saying executives at the Indian tire producer had "buyer's remorse" and were seeking a price cut.

"We went into this merger in a strong position and as we exit this agreement, Cooper remains a strong company," Chief Executive Officer Roy Armes said on the call. "Despite the challenges we've experienced this year, Cooper is expecting to continue to be profitable for the second half of 2013 and to end this year with a strong balance sheet."

Apollo has contended the U.S. company's value has declined partly because of potentially costly contract talks with the United Steelworkers union and difficulties getting financial data from Cooper's Chinese partner, Cooper Chengshan (Shandong) Tire Co., which opposed the deal.

"Apollo has made exhaustive efforts to find a sensible way forward over the last several months, however, Cooper has been unwilling to work constructively to complete a transaction that would have created value for both companies and their shareholders," Apollo said in an emailed statement. "Cooper's actions leave Apollo no choice but to pursue legal remedies for Cooper's detrimental conduct."

Regarding questions about whether a deal could've been reached at a lower price, Armes said that Apollo's offers either lacked financing or put too much risk on Cooper.

"I want to set the record straight," Armes said. "Cooper never received a proposal from Apollo to reduce the share price that included committed financing or that did not come with unreasonable risk for our company and our stockholders."

In a Delaware Chancery Court filing earlier this month, Cooper lawyer Stephen Norman said the company "intends to pursue this case as an action for damages." And in a filing with the Securities and Exchange Commission Monday, Cooper said Apollo "will not be relieved or released from liability for damages."

Anne Roman, a spokeswoman for Cooper, said the company couldn't immediately comment on future litigation tactics.

Cooper doesn't believe it owes Apollo a $50 million termination fee for calling off the merger, Hughes said.

"As to the $112.5 million reverse termination fee from Apollo, Cooper is pursuing this and other possible damages," Hughes said. "Final resolution will be determined by the court."

Restoring normal operations in China and regular financial reporting is Cooper's top priority, Armes said.

"We are legally restricted in the actions we can take with the capital of our company until Cooper resumes regular financial reporting," he said on the call. "Therefore, the CCT situation must be fully resolved before we can address the options available to return value to our shareholders."

The U.S. company's shares slid 9.5 percent this year through Dec. 27, while the Standard & Poor's 500 Index rose 29 percent. Cooper reached as low as $22.08 in regular trading Monday for a 3.8 percent decline, the biggest intraday drop in two weeks, before touching $24.44, the highest intraday price in more than seven weeks.

Delaware Chancery Court Judge Sam Glasscock III last month rejected Cooper's claim that Apollo breached the merger accord by dragging its feet in seeking to negotiate a contract with the steelworker's union that would have helped clear the way for the deal.

Glasscock, who sits in Georgetown, Del., allowed Cooper to appeal his ruling to the state's highest court, which declined earlier this month to hear it and sent it back to the judge. Apollo's lawyers asked Glasscock on Dec. 19 to deny Cooper executives access to the letter of credit that covers breakup fees, which were part of the original buyout contract.

Now that the deal is off, "there could be a trial on damages," said Charles Elson, director of the John L. Weinberg Center for Corporate Governance, who has been following the case.

Such maneuverings "are typically stages in negotiation," Elson said. "With any merger it's a dance, and people get on and off the dance floor" as the process continues, he said.

Raymond DiCamillo, a lawyer for Apollo, didn't immediately return a phone message seeking more information on the litigation's path.

Cooper isn't likely to have to pay the $50 million termination fee to Apollo, Efraim Levy, equity analyst at S&P Capital IQ, said in a telephone interview.

"I don't expect them to have to pay a breakup fee, but it could be up in the air whether they actually will receive one," he said. "It's not a make or break for Cooper. Their operations will resume with or without it, but clearly that kind of money is helpful."

Levy, who has a buy rating on Cooper's stock, forecasts 8 percent revenue growth for the company next year, outpacing the total tire industry. The average number of miles driven in the U.S. is rising along with the average age of cars, which will help Cooper because most of its business is providing replacement tires, he said.

"Cooper has been moving toward improving the mix of their products, trying to go more upscale," Levy said. "They've been trying to take advantage of international lower-cost production and going to China is where you need to be. So they're making efforts to move the company forward."

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Naughton reported from Southfield, Mich. Tom Lavell contributed from Frankfurt, Germany.

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