Cooper Tire & Rubber Co. has struck a deal to sell its Cooper Standard Automotive business and has grand plans to invest part of the proceeds of the $1.17 billion deal overseas, where the company's top executive envisions the firm becoming the largest tire maker in China in five years.
Speaking at an auto industry conference Sept. 16 in Detroit, Thomas Dattilo, chairman, president and CEO, said Cooper's goal is to achieve sales in China of more than $1 billion-equal to a market share of 15 to 17 percent-through acquisitions and expanding its existing business there.
Mr. Dattilo's comments preceded by a day Cooper's announcement Sept. 17 that New York-based private equity entities Cypress Group and Goldman Sachs Capital had agreed to combine forces to bid $1.17 billion for Cooper-Standard and the firm's non-tire automotive components supply business.
Cooper currently has little if any market presence in China. In the past year it has struck three deals to have tires made in China for sale in North America and Europe-including a joint passenger and light truck tire venture with Taiwan's Kenda Rubber Industrial Co. Ltd. worth $200 million. But up to now it has not spoken openly about plans to sell tires in China.
Speaking at the Tire Society meeting Sept. 20 in Akron, Mr. Dattilo said Cooper also is evaluating opportunities in India and eastern Europe as the firm expands its international reach.
As for acquisitions in China, he said that ``definitely'' is part of the equation, but it's too early to discuss specifics. Cooper's other manufacturing deals in China, for radial passenger and steel radial truck tires, are with Hangzhou Zhongce Rubber Co. Ltd.
The largest tire companies in China now are Triangle Group Co. Ltd., Grandtour Tyre Pte. Ltd. and Shandong Chengshan Tire Co. Ltd., each with sales in excess of $500 million. In addition, most of the world's major international tire companies-Group Michelin, Bridgestone Corp., Goodyear, Sumitomo Rubber Industries Ltd., Yokohama Rubber Co. Ltd., Hankook Tire Co. Ltd., Kumho Tire Co. Inc., Toyo Tire & Rubber Co. Ltd. and Cheng Shin/Maxxis International-already have manufacturing and distribution companies in China.
The Cooper-Standard transaction, expected to close in the fourth quarter, is subject to the purchasers' receipt of financing from committed sources and other customary conditions, including regulatory approvals, according to Cooper Tire.
Besides investing overseas, Cooper said it would use the proceeds from the deal to reduce debt and repurchase shares.
The $1.17 billion Cooper Tire is to receive for Cooper-Standard represents a return of 70 cents per dollar of sales or about 12 times earnings, which is considerably higher than most transactions in the rubber industry in recent years.
Cooper-Standard, which reported $96 million in operating profit on $1.66 billion in sales in 2003, operates in three major product areas: vibration control products; rubber seals for doors, trunks, windows and hoods; and hoses to transport fluids, fuels and gases. The unit operates 42 plants in 12 countries with 14,000 employees. The average sales per employee of nearly $119,000 is on par with other leading rubber product companies.
Cooper-Standard's half-year 2004 results showed 70.4- percent and 20.1-percent improvements in operating earnings and sales, respectively. The earnings improvement boosted the unit's profit/sales ratio 2.5 points to 8.5 percent.