Expansion-minded TBC Corp. has purchased Manassas-based retail tire dealership chain Merchant's Inc. for $57.5 million in cash, a move that brings TBC's network of stores to more than 880 nationwide, including 543 franchised outlets.
Merchant's has 112 stores in five states and the District of Columbia. The two companies signed the agreement March 25, and it is slated to close April 1, subject to government approval and other closing conditions.
Speaking at a conference call with industry analysts March 26, TBC President and CEO Larry Day called the Merchant's operation ``an absolutely wonderful complement to our existing interests, with plenty of upside on the tire side.'' The Merchant's purchase fits TBC's geographical criteria for acquisition, he added, giving it a strong presence in the Mid-Atlantic and Southeast, particularly the Carolinas.
The deal is an all-cash transaction of $57.5 million, to be paid within 30 days of closing, according to a TBC press release. Additional consideration of up to $15 million will be paid in future years, depending on the performance of the acquired stores.
The Merchant's stores will be factored into TBC's Tire Kingdom operation, which boasted 228 outlets before the Merchant's acquisition. Eventually all the Merchant's locations will be renamed Tire Kingdom, Mr. Day said, but ``Merchant's is a very well-respected name in its area, so for a long period of time, the Merchant's name will be associated with the business in some form.'' Changeover to the Tire Kingdom name probably will be faster at the 27 Merchant's stores in North Carolina, where both Merchant's and Tire Kingdom are relatively new names, he added.
When TBC bought the Cleveland-based, 19-store Mueller Tire & Brake chain in March 2002, it said it would retain the well-known Mueller name in the Cleveland-area stores. By December, however, it had changed all those stores to Tire Kingdom because it wanted to market its own brand names.
Mr. Day said he anticipated a much smoother integration of Merchant's into Tire Kingdom than had happened with Mueller, despite Merchant's far greater size. Merchant's corporate culture is already much closer to Tire Kingdom's than Mueller's, and Merchant's stores are uniformly well-equipped and well-merchandised, he said
TBC also will have to expend little on warehouse space for Merchant's, because TBC's Carroll Tire wholesale operation already has warehouses in Merchant's region, according to Mr. Day. He estimated that TBC will spend less than $2 million in capital investments on the acquisition, mostly for new signage.
TBC is adjusting its earnings guidance slightly for 2003 because of the Merchant's buyout, from $1.38-$1.40 per share to $1.34-$1.38, according to the press release. The company's current projections, however, are that the purchase will add at least 10 cents to its share value in 2004.
During the conference call, an analyst asked Mr. Day if TBC would ``keep the store-level people but remove redundancies in corporate overhead'' at Merchant's. Mr. Day said yes. However, he could not be reached by Tire Business to confirm whether this means that TBC will dismiss some or all of Merchant's current executives, and Steve Steffens, vice president of marketing for Merchant's, said he did not know the answer to that question.
Also during the call, Mr. Day said TBC ``wouldn't be afraid of integrating 1,000 stores'' into its operations. ``I said earlier that I would be disappointed if we couldn't bring a few deals to the table this year, and I stand by that statement,'' he said.
The company is looking at some possible opportunities for acquisitions on the East Coast and in the Midwest, Mr. Day said. The main criteria for possible purchases include dealerships that fit TBC's geographic needs and that are not ``fixer-uppers,'' he added.
The largest independent tire retailer in the U.S., TBC reported net sales of $1.1 billion in 2002, with retail net sales of more than $500 million. Besides Tire Kingdom and now Merchant's, its operations include 543 Big O Tires Inc. franchised outlets.
Besides the 27 North Carolina stores, Merchant's has 57 outlets in Virginia, 23 in Maryland, three in South Carolina, and one each in Pennsylvania and the District of Columbia. It was the sixth-largest tire retailer in North America before the acquisition, with sales of more than $150 million in 2002.