Powerhouse wholesaler and retailer TBC Corp. will be bought by Sumitomo Corp. of America (SCOA) for $1.1 billion-SCOA's single largest investment to date.
The pending acquisition will link TBC with private brand marketer and wholesaler Treadways Corp. under common ownership. TBC and East Norriton, Pa.-based Treadways will continue to be run as separate companies under their existing management with no changes anticipated in the short term, a Sumitomo spokeswoman said.
The transaction, which includes $35 per share in cash plus debt, is subject to TBC shareholder and regulatory approval. TBC said the deal is expected to close by year-end. When the sale is final, TBC will become a subsidiary of SCOA and its parent, Sumitomo Corp. of Japan. Sumitomo is a minority shareholder (3.7 percent) in Japan's Sumitomo Rubber Industries Ltd. (SRI), which makes the Sumitomo-brand tires sold by Treadways in North America. SRI has no direct involvement in SCOA, however.
TBC will continue to be led by President and CEO Larry Day.
``This is the single largest investment that SCOA has made and complements our portfolio of operating companies,'' said Susumu Kato, SCOA president and CEO, in a prepared statement. ``We look forward to working with TBC's existing management team to continue the successful implementation of their long-term business strategy.''
Shares of TBC's stock jumped 31.5 percent to $34.36 on Sept. 19, following the announcement. The per-share purchase price represents a 34-percent premium over the Sept. 16 stock price of $26.12.
Mr. Day said in a statement that TBC shareholders will receive a premium over historic trading levels with the deal.
``In addition, the continuity of management will provide excellent opportunities for employees, franchisees and supply partners who have enjoyed long-term relationships with the company,'' he said.
Palm Beach Gardens-based TBC operates a wholesale and private brand division along with retail subsidiaries operating under Tire Kingdom, Merchant's and NTB as well as franchiser Big O Tires Inc. As of June 30, TBC's retail arm consisted of 1,175 stores-613 company-owned outlets and 562 franchised stores.
That retail component is a new asset for Sumitomo.
Saul Ludwig, an analyst for KeyBanc Capital Markets, said Sumitomo has long wanted to be involved in the retail tire market, but attempts over the years proved unsuccessful. When Dan Wire, chairman and CEO of Treadways, announced his retirement in May, he indicated that a major disappointment for him was the inability to enter the retail market.
``That indicated they were desirous of doing that,'' Mr. Ludwig said of Mr. Wire's statement, which the latter had declined to elaborate on at the time.
``If someone wants to be in the retail business and has a big bankroll, TBC was sort of sitting there,'' Mr. Ludwig said.
If TBC's main value is its retail segment, its wholesale component also could add significantly to Treadways' business, Mr. Ludwig indicated. The combination of the two companies from a tire unit sales standpoint would create a mammoth wholesaler with ``tremendous'' buying power for both wholesale and retail sides, he said.
``They would become the largest wholesaler in the country, bigger than American Tire Distributors,'' he said. ``So they would be the big daddy in the wholesaling of tires.''
In 2004 TBC reported net wholesale sales of $662.1 million, up from $584.5 million in 2003. In the first half of 2005, TBC posted wholesale sales of $340.3 million and retail sales of $608.5 million. Treadways' sales are not reported, but Sumitomo said in its 2004 annual report that the division ``substantially contributed to our profits in 2004.''
``(Sumitomo was) interested in this retail segment and in particular TBC because of their strong network of stores and franchises and their strong management,'' a Sumitomo spokeswoman told Tire Business.
She added that no immediate changes are planned.
In documents submitted to the Securities and Exchange Commission (SEC), TBC said its value to Sumitomo includes its multi-sector infrastructure of wholesale, retail and franchise components and its proven track record as an industry consolidator.
``Sumitomo views TBC and the proposed transaction as a long-term financial `growth' investment vs. a strategic acquisition,'' the company said in the filings.
For TBC, the move will save about $3 million annually related to public trading expenses and SEC reporting burdens, the firm noted.
``As an investor and financier of businesses, Sumitomo can provide TBC with more favorable access to the capital needed for execution of our rapid growth and expansion plans,'' TBC said in the documents.
Mr. Ludwig said he believes TBC, under Sumitomo, will look to continue expanding its retail reach.
The Sumitomo spokeswoman said the firm intends to support the growth plans TBC already has, but it didn't buy the company as an acquisition vehicle. ``We have no intent now to buy other companies under TBC.''
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Parent: Sumitomo Corp. of America
Divisions: Telstar Tire; Jetzon Tire; Eldorado Tire; TreadXpress
Private brands: Telstar, Doral, Jetzon, Eldorado, Laramie, Sumic
Sales: Not disclosed
Retail divisions: Tire Kingdom Inc.; Merchant's Inc.; NTB; Big O Tires Inc.
Total store count: 1,175
Private brands: Cordovan, Harvest King, Mirada, Multi-Mile, NaviTrac, Power King, Sigma, Sonar, Vanderbilt
Net wholesale sales in 2004: $662.1 million
Retail sales in 2004: $1.19 billion