Yokohama-Trelleborg Wheel deal delayed until early 2023

TRELLEBORG, Sweden — The completion of Yokohama Rubber Co. Ltd.’s deal to buy Trelleborg Wheel Systems --- which was expected to close by year-end ---  has been delayed for up to six months, the firms disclosed Dec. 27 in separate statements.

YRC and Trelleborg A.B. said they still need to secure regulatory approval in a number of nations, delaying the expected closing of the $2.3 billion deal agreed to in March. 

A Trelleborg spokeswoman told Rubber News that the European Union and the United Kingdom are markets where approvals still are needed.

"In connection with Trelleborg's third-quarter interim report, it was communicated that regulatory approval in a number of countries is still pending, and that the divestment of Trelleborg Wheel Systems was expected to be finalized within the next few months," Trelleborg said.

"Trelleborg now wishes to clarify that the divestment will not be completed before year-end but is instead expected to take place during the first half of 2023, likely in the first months of the year."

Yokohama said in its release that the completion of reviews by the "competition law authorities of each country and region," and the expected time it will take to complete these reviews made it necessary to delay the closing. The Japanese tire and rubber product maker added that the change in timing of the acquisition's completion will have little impact on the company's fiscal 2022 consolidated financial results.

"Yokohama Rubber will promptly provide notification of the exact date of the share transfer once decided and any other related events that may emerge."

When the deal was announced in late March, it was hailed as a transaction that would make Yokohama's tire operations less dependent on consumer tires, while Trelleborg was selling a business it believed was at the top of its valuation, freeing the company up to focus on its non-tire rubber businesses.

The Trelleborg Wheel Systems business generated $1.17 billion in revenue in 2021 on the sale of off-highway tires and wheels. Of tires manufactured and sold by Trelleborg, agricultural tires account for about 60%, industrial tires about 20%, with the remainder being tires for construction machinery and motorcycles. The company does not break down its sales by tires versus wheels.

Trelleborg has 10 tire plants in seven countries on three continents — China, Czech Republic, India, Italy, Serbia, Sri Lanka and the U.S. — and four wheel plants in four nations.

About 69% of Trelleborg Wheel's business was generated in Europe in 2021, followed by North America at 18%, Latin America at 6% and the rest of the world 7%.

The sale in effect will double the size of Yokohama Rubber's off-highway tire business. Yokohama Rubber's off-highway tires business accounted for $977 million in sales last year and is a unit YRC sees as a "future growth driver."

After considering different alternatives for TWS, Trelleborg management concluded that divesting at this valuation would generate the most shareholder value and creates exciting opportunities going forward.

Trelleborg said in its Dec. 27 release that the $2.3 billion price was a figure "13 times the business area's 2021 operational EBITDA, or 17.5 times 2021 EBIT." The firm said the transaction will result in an estimated capital gain of nearly $575 million.

The Swedish firm said divesting TWS also will help Trelleborg improve its profitability and make its overall business less cyclical. TWS accounted for 30% of group sales, but contributed just 22% of EBIT, according to Trelleborg.

TWS posted strong financial results in 2022, reporting double-digit gains in earnings and sales for the third quarter and first nine months of the year. It had a 29.8% jump in operating income for the quarter to $29.3 million on 33% higher sales of $299 million, despite weakening aftermarket demand for agricultural tires in Europe.

For the January-September period, operating income was up 42.6% to $135.3 million on 34.9% higher sales of $998 million.