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Published on December 18, 2006

BAH-Bandag deal a good fit

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Opinion

AKRON (Dec. 18, 2006) — The North American tire industry had lots of noteworthy events this year, but none was greater than Bridgestone Americas Holding (BAH) Inc.'s announcement Dec. 5 that it would purchase Bandag Inc. in a cash deal for $1.05 billion.


Long anticipated by many, the blockbuster deal caught the industry by surprise and instantly raised the stakes in the retreading market not only in North America but around the globe.


The two companies seem to be a good fit. BAH has only one retread plant of its own in North America, the Oncor mold-cure facility in St. Louis. Through its GCR Tire Centers commercial dealership chain, it also operates 21 Bandag retread plants as well as seven others using Oliver Rubber Co.'s retreading process.


Now it will own a company that controls 45 percent of the U.S. retreading market, giving it an important link in its goal of offering cradle-to-grave service to the commercial vehicle industry.


Prior to this, BAH was unable to offer full-service, one-stop shopping to fleets on a national scale, something its arch rivals—Good¬year and Michelin North America Inc.—were able to do.


While the deal is still fresh and won't close until late in the first quarter, some of its impact already seems clear.


For one, it will strengthen BAH's controlled commercial distribution in the U.S. by adding Bandag's 45 Tire Distribution Systems commercial outlets, which operate 15 Bandag retread plants, to the tire maker's 156 GCR outlets in the U.S. The two chains have little overlap, with the exception of two or three Western states.


In BAH, Bandag franchise dealers also will find a parent company that's known for its commitment to the independent tire dealer channel. Many Bandag dealers already sell the firm's new tire brands through their commercial outlets and so are familiar with the tire maker.


Under BAH's ownership that relationship should only get stronger.


Long term, Bandag retreaders likely will benefit from BAH's extensive research and development resources, its understanding of tread designs and rubber compounding, its marketing clout and its purchasing economies of scale, especially for raw materials. Like its major competitors, BAH also may choose to offer its new-tire tread patterns in its retread products.


Corporately, the deal will strengthen BAH parent company Bridgestone Corp.'s lead as the world's largest tire maker, providing more than $900 million in additional annual revenue.


The deal also could mean an expansion for Bandag, which combined with Bridgestone's financial might, could broaden its presence in Europe, South Africa, Brazil and Australia.


It's not too far-fetched to think Bridgestone also could take Ban¬dag into its markets throughout Asia.


This purchase will continue to make an impact for years to come.

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