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June 21, 1999 02:00 AM

GOODYEAR-SUMITOMO DEAL SET

Larry Wingert Tire Business staff
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    TOKYO—Goodyear and Sumitomo Rubber Industries Ltd. (SRI) signed agreements June 14 in Tokyo finalizing the global alliance the two companies announced in February—a deal that likely will make Goodyear the world's largest tire maker. The tie-up will give Goodyear control over Dunlop tire operations in North America and Europe, while Sumitomo will take over sales of Goodyear-brand tires in Japan. The two companies also will cooperate in the areas of tire technology and raw materials purchasing.

    Goodyear and Sumitomo are creating four joint-venture operating companies—one each in North America and Europe, which will be 75-percent owned by Goodyear, and two in Japan, which will be 75-percent owned by Sumitomo—and two global support ventures, to be based in the U.S. and controlled by Goodyear. The six joint ventures are expected to begin operations in September.

    The North American operating unit, to be called Goodyear Dunlop Tires North America L.L.C., will consist primarily of the operations of Buffalo, N.Y.-based Dunlop Tire Corp., including tire plants in Buffalo and Huntsville, Ala., and the 45-store Allied Tire Sales Inc. retail chain in Florida. Annual sales of these operations total about $800 million. Goodyear's North American operations will remain outside the joint venture.

    Goodyear has said it plans to make Dunlop-brand tires available to all Goodyear dealers and at all Goodyear stores, where they will be positioned as the ``better'' offering in a good-better-best product line-up.

    The European joint venture, Goodyear Dunlop Tires Europe B.V., will consist of 14 Goodyear and Sumitomo/Dunlop tire-manufacturing facilities and a network of approximately 500 company-owned retail stores. Annual sales for this unit amount to about $4 billion.

    Of the two SRI-controlled joint ventures in Japan, one will handle the sale of both Dunlop- and Goodyear-brand tires to Japanese original equipment manufacturers, while the other will be responsible for sales of Goodyear-brand tires in the Japanese replacement market. Sumitomo's domestic tire-manufacturing and replacement sales operations will remain outside the joint venture.

    Goodyear also will acquire a 10-percent interest in SRI, which in turn will acquire an equivalent dollar amount of Goodyear shares, expected to be less than 1.5 percent of all Goodyear stock.

    To compensate for differences in the value of the assets being consolidated in the joint ventures and the agreed-upon shareholding ratios, Goodyear also will make a cash payment of $936 million to SRI.

    As a result of this alliance, Goodyear said its annual sales should increase by $2.5 billion, or about 20 percent, which should move it past global rivals Bridgestone Corp. and Group Michelin.

    The joint ventures also should yield savings of $300 million to $360 million over the next three years, Goodyear said.

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