1987- A look into the past: Continental to purchase General Tire

(Editor's Note: This story is part of our #TireBiz30 in which we feature one archived story every day of September to celebrate Tire Business' 30th anniversary. Each story represents one of the most relevant news story published in our pages for that year.)

AKRON — GenCorp Inc. has agreed to sell its General Tire sub­sidiary to West German tire maker Continental Gummi-Werke A.G. for $650 million in cash.

The acquisition will make Con­tinental the world's fourth largest tire maker, based on sales, behind Goodyear, Michelin and Bridge­stone. In 1986, Continental's tire sales hit $1.62 billion (at the an­nual averaged exchange rate), while General Tire's sales totaled $1.12 billion-one-third of Gen­Corp's total sales. The companies expect to close the deal by Nov.1.

"This agreement represents a critical accomplishment in our plan to restructure GenCorp," said A. William Reynolds, Gen­Corp chairman and CEO. "At the same time, it will strengthen the competitive position of both Gen­eral Tire and Continental by cre­ating a new world competitor in what has become a world indus­try."

According to Continental Presi­dent Helmut Werner, "The acqui­sition will provide us with a sound and strong presence in the world's largest tire market (North Amer­ica). This step is of vital strategic importance to us and will provide Continental with worldwide oper­ations."

General Tire President Gilbert H. Neal said Continental officials told him that they plan no im­mediate changes in General Tire's operations, including its management and workforce, and will maintain the company's head­quarters in Akron. Continental will operate General Tire as a separate company, Neal said, and management will report to the Continental board in Hanover, West Germany.

A spokesman also indicated that General Tire is reviewing its previously expressed desire to sell all of its company-owned retail outlets. Continental, through its Vergoelst GmbH subsidiary, is one of West Germany's top new tire retailers with 160 stores. It also claims to be that country's largest retreader.

Neal, who led a management group that had sought to acquire General Tire through a leveraged buyout, said Continental's offer was "substantially greater" than his group's. He said he believes the purchase by Continental is a positive move for General Tire and will make General a global player in the tire industry.

Neal anticipates no problems with the transition in ownership, he said, pointing out that General Tire and Continental have worked together for several years under the terms of a technology ex-change agreement. General cur­rently makes some 300,000 Con­tinental-brand tires annually.

He also said that the move should strengthen General Tire's position in the medium truck ra­dial market, one in which Con­tinental, with its E.O.T. (Energy Optimizing Technology) design, is already strong.

Industry analyst Harry Millis of McDonald & Co. in Cleveland characterized the sale as "in line with expectations, though it hap­pened a little sooner (by a month or so) than I had expected."

Millis said that while the $650 million purchase price was sub­stantially higher than General Tire's estimated book value of about $550 million, GenCorp re­tained liability for the medical benefits of General Tire employees who retired on or before Nov. 30, 1984. Millis estimated the cost of this liability at $100 million over time.

Millis concurred with Gen­Corp's decision to accept Conti­nental's offer over that of the management group, adding, "The longer range interests of (General Tire) employees will be better served by the Continental pur­chase than they would have been by the leveraged buy-out," which would have left General "a highly leveraged, essentially domestic company."

Continental, No. 2 behind Michelin in the European tire market, operates 11 plants on the continent together with its Sem­perit and Uniroyal-Englebert sub­sidiaries.

With the purchase of General Tire, Continental will acquire General's tire plants: four in the United States, two in Mexico and one each in Canada, Morocco, Ecuador and Tanzania. In addi­tion, Continental will gain General's minority interests in tire companies in Portugal and Pakistan, as well as its tire fabric plant, tire testing facilities and synthetic rubber plant.

GenCorp had announced the decision to sell its tire making unit April 6 as a result of its success­ful defense against a hostile take· over attempt. The proceeds from the sale will help finance the $1.6 billion debt GenCorp incurred in that defense.

GenCorp also is selling its RKO General businesses as part of its restructuring program and said that process is "proceeding satisfactorily."