MEMPHIS, Tenn.—TBC Corp. can't legitimately parrot that famous line from the movie Titanic about being "king of the world." But in the cutthroat Florida tire retailing kingdom, the company has quickly solidified its position as one heir-apparent to that throne.
Days after rumors surfaced that a deal was in the making, Memphis-based TBC indeed made its first major venture into direct ownership of retail outlets by acquiring Tire Kingdom Inc. (TKI) on June 5. The purchase price for one of North America's largest retail tire dealerships was $45 million in cash—approximately equal to nine times Tire Kingdom's 1999 earnings before income taxes, depreciation and amortization.
According to TBC's 8-K report, filed June 8 with the U.S. Securities and Exchange Commission, it expected to record approximately $27 million in goodwill related to the acquisition.
TKI, founded in 1972, will retain its headquarters in Riviera Beach, Fla. It owns and operates 148 retail stores in leased locations. All are in Florida, except four outlets in Charlotte, N.C. TKI also operates two primary distribution centers—in Riviera Beach and Orlando, Fla.—that total 205,000 square feet of space.
With TBC hitting record net sales of $743.1 million in 1999—up 15 percent over 1998—and TKI's revenue last year totalling $224 million, the buyout will put TBC within a sniff of being a $1 billion-a-year company, rivaling one of its big competitors, Heafner Tire Group Inc.
About $192 million of TKI's sales were generated through its stores, most of which are in prime retail locations, with the balance contributed by its wholesale business.
TBC's CEO, Larry Day, said the buyout is consistent with the company's intention to be a "consolidator in a consolidating industry."
That statement reflected comments he and other executives made earlier this year in Palm Springs, Calif., during the company's annual meeting. There, they promised customers, dealers and suppliers that TBC would continue to be on the prowl for future acquisitions.
The purchase of TKI, Mr. Day said, "offers TBC an exceptional opportunity to expand the marketing channels for our proprietary tire brands. The replacement tire market has been consolidating at an accelerating pace in recent years, and we believe it is imperative to use our strong capital base to integrate forward through attractive strategic acquisitions."
The company said it is financing the TKI transaction primarily through bank borrowings and has increased its credit facility from $100 million to $133 million through a syndicate of banks led by Chase Manhattan Bank N.A.
In the Sunshine State's volatile, crowded retail tire market, Tire Kingdom over the years gained a reputation as a retailer that wouldn't hesitate to cut prices in order to get the sale—sometimes advertising passenger tires for as little as around $9. Its flamboyant former president, Chuck Curcio, was a staple in TV ads there, proclaiming he was the state's "Tire King," complete with crown.
About 25 percent of the tires TKI markets are nationally advertised "flag" brands. The remainder are private label tires and other manufacturers' brands.
The company's retail outlets provide undercar maintenance related to tire replacement, as well as brake and suspension service, driveline repair and oil changes. TKI has about 1,600 employees.
The chain, at one time owned by Michelin North America Inc., averaged $1.3 million in sales per store last year. Background material provided by TBC noted that Tire Kingdom believes there is current potential to open from 40 to 60 additional stores within Florida and contiguous states. Such expansion would require "only a minimal additional investment in corporate infrastructure," it added.
In its 8-K filing, TBC said it expected to realize annual savings and cost reductions of more than $4 million once it and TKI "are fully assimilated."
A long time private brand marketer, TBC dipped into retailing, at least peripherally, through its 1996 acquisition of Colorado-based Big O Tires Inc. But that successful chain's network—which currently encompasses 457 stores in 20 states and 38 associate dealers in Canada—is primarily operated through franchisees and has only a dozen company-owned locations.
That, according to one industry observer, likely left TBC little actual control over the Big O organization because of its franchise agreements, and virtually few opportunities for TBC to try its hand at retailing.
TBC's Mr. Day also was described as someone who "has retail bones." He came to TBC from Monro Muffler Brake Inc. several years ago and also worked for Montgomery Ward & Co.
Besides the Big O purchase, TBC bought Northern States Tire Inc., a wholesale distributor in Lebanon, N.H., in 1995. Two years ago it acquired one of its own customers, Atlanta-based Carroll's Inc., one of North America's largest regional private brand tire distributors.
TBC has followed in the footsteps of other large tire marketers such as Heafner and, more recently, Del-Nat Tire Corp. Both of those organizations have taken the retail store acquisition route as one way to increase market share, in essence buying greater distribution.
Through its proprietary Multi-Mile, Cordovan and Sigma brands, plus its Big O subsidiary, TBC claims it is the nation's fifth-largest marketer of replacement passenger tires, holding an approximate 7 percent share, and nearly an 11-percent stake in the light-truck tire sector.
A company spokesman said it is "still absorbing the acquisition and clarifying some key points," including issues concerning who will manage the Tire Kingdom operations.
While TBC already has big market penetration in Florida for its Multi-Mile and Cordovan brands, it can use an arena like Tire Kingdom to showcase Sigma—the smallest of its private-label lines. That brand was relaunched at its annual meeting in January.
But it's a safe bet to assume TKI's competitors aren't planning to sit back and willingly abdicate the keys to the kingdom.
The biggest player in that rough-and-tumble market is Larry Morgan, owner and CEO of Morgan Tire & Auto Inc. in Clearwater, Fla. Based on store count, his is the nation's third-largest dealership.
In the land of orange juice, is Mr. Morgan feeling the squeeze?
"I've handled the competition in the past. I'm not getting any weaker," he told Tire Business from Washington, D.C., where he was scouting new store locations for the Performance Discount Tire Inc. chain he purchased March 31.
TBC's move didn't really surprise him.
"Everyone's known Tire Kingdom has been for sale for years and years and years," he said. "I think it's just further consolidation. There are just a few players out there now, and that's what it's all about."
Morgan Tire operates approximately 185 stores in Florida. And while TKI has tried to lay claim to being the state's biggest tire retailer, Mr. Morgan said "that may be their interpretation, but I'd refute that. We've got more sites and do more business."
The last time Mr. Morgan checked the numbers—about four years ago—he said it was estimated that some 10 million tires were sold annually in the state.
Although he wouldn't speculate on TBC's objectives, he said the TKI purchase may "start to raise some questions because, let's face it, they're going into competition with some of their traditional customers. That's undeniable.
"Right there in Florida, Carroll Tire is a big distributor and, of course, TBC has a lot of direct TBC-branded customers who'll now all of a sudden be competing with their supplier."
Nonetheless, he has no plans to change how his Olson Tire Total Car Care operates in Florida.
"We started out when we were `David' and Tire Kingdom was `Goliath' and we lived through that," he said. "So I don't think we'll change anything, really.
"I've always kind of worried about myself and not too much about the competition."