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Cooper Tire takes $29 million hit from China strikes

Cooper tires on display at a motor show in Santiago, Chile.
Claudio Santana | AFP | Getty Images
Cooper tires on display at a motor show in Santiago, Chile.

Chinese industrial action cost Cooper Tire $29 million in the three months to September 30, the Ohio-based company reported, shedding rare light on the economic impact of a labor dispute in the country.

While strikes are common across China, they typically occur at little-known suppliers. On those rare occasions when labor unrest disrupts operations at a large multinational, the impact on a global company's overall operations is usually not material enough to force disclosure about a specific strike's financial cost.

(Read more: Youth unemployment in China: A crisis in the making)

The 7-month industrial action at Cooper's joint venture factory in Shandong province derailed a $2.4 billion bid by Apollo Tyres for Cooper, in what would have been the largest Indian takeover of a US company. It also occurred at a facility that generates as much as one-quarter of Cooper's revenue and profit.

In a delayed third-quarter earnings report, Cooper said the strike had cost it $22 million in reduced production volumes and another $7 million in "manufacturing inefficiencies". The company incurred another $5m in expenses related to the failed transaction during the quarter.

The losses in Shandong contributed to a 25 percent year-on-year fall in third-quarter sales, to $832 million. Operating profit contracted almost 80 per cent compared with the same period in 2012, to $28 million. Cooper reported a net loss of $168,000 for the July-September period, compared with a net profit of $74m a year earlier.

(Read more: This is how fast China's workforce is shrinking)

Management at Cooper's Shandong partner, Chengshan Group, and the joint venture's workforce had opposed the proposed takeover by Apollo, arguing that it would saddle Cooper with too much debt.

The strike began in mid-June. Two months later, Cooper confirmed that workers at the factory had barred its managers from the factory, were withholding financial information and had ceased production of Cooper-brand tires.

As a result, Cooper was unable to meet a mid-November filing deadline for its third-quarter results – a development that Apollo said made it impossible to secure financing for the transaction ahead of a year-end deadline.

(Read more: Chinese Labor Pool Begins to Drain)

Cooper finally resolved its dispute with Chengshan and the workers in January, by giving the Chinese company an option to purchase the factory. If Chengshan does not exercise its right to buy out Cooper's 65 per cent interest in the factory, the US company will be able to purchase its partner's minority interest.

Cooper is expected to reveal further losses stemming from the strike when it reports its fourth-quarter earnings later this month, but the company's chairman downplayed its potential impact.

More from the Financial Times:
India's Apollo to shift focus after failed Cooper Tire deal
Cooper Tire agrees deal with China partner
Tiring task of unpicking takeover

"Our business model remains resilient and we will report positive operating profit and net income for the fourth quarter and second half of 2013," said Roy Armes.

In an interview with the Financial Times last month, Neeraj Kanwar, Apollo Tyres' managing director, said the strike had dissuaded him from investing in China, adding that the company would focus instead on expanding in eastern Europe and southeast Asia.

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