FINDLAY, Ohio—Cooper Tire & Rubber Co. is on a billion-dollar spending spree that will shift the company's main focus away from tires toward the automotive original equipment parts market. Cooper announced an agreement Nov. 23 to acquire the Siebe Automotive division of London-based Invensys P.L.C. for $244.5 million. Cooper's board of directors has approved the purchase, and the deal is expected to close early next year.
When the Siebe deal is finalized, auto parts will become Cooper's primary business, with tires accounting for about 42 percent of the Findlay-based company's annual sales of $3.6 billion. In 1996, tires made up 85 percent of Cooper's sales.
This latest acquisition comes in the wake of the recent $757.4 million purchase of Standard Products Co. by Cooper, which has spent nearly $1 billion acquiring two automotive parts suppliers in less than a year.
Siebe, based in Southfield, Mich., manufactures automotive parts such as fuel and brake lines and thermostats. It posted about $400 million in sales for the previous 12 months ending Sept. 30.
Siebe has 16 operating locations worldwide and 4,000 employees.
Invensys said Siebe was formed in 1996 by combining parts of six smaller companies. Although 53 percent of Siebe's sales are in North America, its parent firm said the company also does business in Europe, South America and Australia.
"This disposal reinforces our strategy of focusing on automation and controls, which is where we see the greatest opportunity for continued growth," Invensys CEO Allen Yurko said in a press release.
Growth in a new market is also the predominant reason Cooper gave for the purchase.
"This acquisition is consistent with our `Cooper 21' plan to grow our automotive operations," said Patrick W. Rooney, Cooper Chairman and CEO, in a statement.
About 40 percent of Siebe's sales come from Ford Motor Co., and the firm also supplies General Motors Corp., DaimlerChrysler A.G. and Volkswagen A.G.
"I think they (Cooper) are positioning themselves well to be an automotive components supplier," said Wendy Beale Needham, a rubber industry analyst at Donaldson, Lufkin and Jenrette in New York.
Cooper stands to enhance its multiples to its shareholders by moving into the automotive supplier business, she said, but that won't happen right away.
"Acquisitions sometimes take a while to digest," Ms. Needham said, "and this team (Cooper) hasn't done a lot of acquisitions."
In the wake of the Siebe acquisition, two major investment services raised concerns about Cooper's added debt.
Moody's Investors Service announced it was downgrading the rating on Cooper's long-term debt from A3 to A2. In a press release, Moody's said, "(T)he timing of this debt-financed transaction escalates the financial risk associated with the recent $800 million, all-debt acquisition of Standard Products, and (Cooper) management's integration skills will be strained."
Standard and Poor's also lowered Cooper's corporate credit and senior unsecured debt ratings from "A-" to "BBB+." "Because both transactions (Standard Products and Siebe) are cash deals, Cooper will now have significantly more debt on its balance sheet than it has had historically," S&P said.
But Cooper officials think the acquisitions will be positive in the long run.
"Adding this fluid-handling business to our own hose division creates an enormous global capability for Cooper to supply the world automotive industry," said Thomas Datillo, Cooper president and COO.
Cooper will concentrate on integrating the new business units, Mr. Datillo said, "and expanding the capability of each to add value for our shareholders."