China was supposed to be an opportunity, not an obstacle, for Apollo Tyres. The Indian company, which is trying to swallow a larger American rival in a highly-leveraged takeover deal, has encountered determined resistance from 5,000 striking Chinese workers in eastern Shandong province.

Apollo and its target, Ohio-based Cooper Tire, insist that the transaction will be completed by the end of the year. But even if the workers do not succeed in sinking what would be the biggest Indian takeover of an American company to date, they have revealed a new area of risk for multinationals in China – potentially fierce opposition to cross-border deals that do not directly involve a Chinese party.

On June 12, Apollo announced it had reached an agreement to acquire Cooper for $2.5bn. One of the main rationales for the ambitious deal was China, where Cooper operates two factories, including a 65 per cent-owned joint venture with China’s Chengshan Group in Shandong. Another prize for Apollo was Cooper’s extensive distribution network in China.

“Cooper fits in strategically . . . with its strong distribution network in North America and China, which is a perfect match for Apollo’s existing presence in India, Europe and Africa,” Sunam Sukar, Apollo’s chief financial officer, told analysts in June.

Gaurav Kumar, Apollo’s corporate strategy and finance head, added that Apollo’s weak position in China would even help smooth completion of the transaction. “Apollo does not have any presence in China,” he noted. “So there is no regulatory approval needed [from Chinese competition authorities].”

What neither Apollo nor Cooper anticipated was resistance from Cooper’s workforce in Shandong, aided by Cooper’s joint venture partner.

Both the workers and Chengshan’s management are concerned that the deal will be entirely funded by debt, most of which will sit on Cooper’s books, and worry about a potential culture clash with their prospective Indian owner.

India’s falling bond market and rupee have only added to their unease, which is shared by some analysts.

“Our view from the start is that this is a very brave, if not stupid, move by Apollo, and even more so given India’s current troubled times,” said Anil Singhvi at Institutional Investor Advisory Services, a Mumbai-based group that represents minority shareholders. “Their decision to fund it through debt . . . will now present a daunting task for both sides.”

Earlier this month, Mr Kumar assured analysts that the deal’s financing was not an issue. “We have gone to all the lenders [and] explained the rationale of the transaction,” he said. “The reaction has been positive.”

“Lenders would be nervous about the [strike] as the uncertainty is there,” added Yaresh Kothari, autos analyst at Mumbai-based Angel Broking. “But if the management can close the deal then I don’t think there should be any problems.”

Unlike most other high-profile disputes between foreign manufacturers and their Chinese employees, Cooper’s Shandong workforce insists that pay is not their grievance. “We believe the legitimate interests of . . . employees will be significantly damaged by the merger,” the joint venture’s union said.

The situation in Shandong is also unusual in that Cooper is facing opposition from its workforce and its Chinese joint venture partner. When workers at Honda’s China plants agitated for higher wages in landmark industrial actions in 2010, the Japanese carmaker’s local partner acted as a peacemaker in attempts to bring the strikes to an end.

Chengshan, by contrast, has chosen to pour fuel on the workers’ fire by asking a local court to dissolve its joint venture with Cooper.

The workers in turn agreed to return to the factory on August 17 but said they will only produce Chengshan-brand tires while boycotting any work on Cooper tires.

The local government also appears tolerant, if not supportive, of the industrial action. “We don’t want to see any negative effects born out of this,” said one official at the local labour bureau, who asked not to be named. “But the workers do not feel reassured about their job stability.”

Additional reporting by Wan Li and Avantika Chilkoti

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