TOKYO—A quarter century ago, the practice of foreign companies' buying U.S. tire manufacturers hit its zenith. The date: Feb. 16, 1988. The deal: Tokyo-based Bridgestone Corp. offered to buy a controlling interest in Firestone Tire & Rubber Co. for $1.25 billion.
The announcement sent shock waves through the markets. For much of its history, Bridgestone, whose roots trace back to the early 1930s, had been the dominant player in Asia. However, the firm had no manufacturing presence in Europe and only one medium-sized plant in North America: a truck tire factory in La Vergne, Tenn., that it had acquired five years earlier from Firestone. The deal would give Bridgestone 19 more tire plants on five continents.
No longer would Bridgestone be just another second-tier manufacturer in the global tire industry, but a competitor on more equal footing with the two giants that led the field, France's Group Michelin and Akron-based Goodyear. Any celebration in Tokyo, however, was premature. Three weeks later, Pirelli S.p.A. and Michelin moved to block the bid, jointly mounting an unsolicited $58 a share offer, worth $1.9 billion.
The companies wanted all of Firestone, including its North American tire retail operation and non-tire business, primarily synthetic rubber and roofing materials. Most analysts concluded the bidding was over. Bridgestone would be shut out of the European market, where it would have picked up six plants, and have just one, rather than six, tire factories in North America.
Bridgestone instead did the unexpected. On March 18 it made a then-Japanese record offer of $2.6 billion, $80 per share for all of Firestone—both tire and non-tire businesses—including 1,500 automotive service centers and 27 plants. Firestone's shares were going for $35.75 before Bridgestone made its initial offer.
The Securities and Exchange Commission (SEC) approved the acquisition on May 5. Early in 1990, Bridgestone merged its existing U.S. operation with Firestone to become Bridgestone/Firestone Inc. and separated Firestone's European operation, creating Bridgestone/Firestone Europe L.L.C. The difficulties overcome in acquiring Firestone were a portent for other problems Bridgestone would face with its new operations.
In May 1988, just days before the SEC approved the purchase, General Motors Corp. dropped Firestone as a supplier, except for the Saturn project, where Firestone had just been named exclusive provider of tires. Bridgestone soon learned many of the plants it had acquired were in worse condition than anticipated. Firestone Chairman John Nevin had refused to let prospective buyers in for a look. Before year's end, Bridgestone committed another $1.5 billion to upgrade and modernize Firestone's North American and European plants.
The Japanese company also took a hit in earnings because of the acquisition. In spring 1989, Firestone's addition dragged the company's profits down 76 percent to a seven-year low of $107 million. Income continued to decline in 1989—and the firm would have been in the red if it hadn't sold a tract of land west of Tokyo. In North America and Europe, the former Firestone operations ran up net losses of $1.2 billion over a 41/2-year period through fiscal 1992.
The bleeding finally stopped in 1993. At the time, industry analysts declared Bridgestone had underestimated the scale of the problems it faced by swallowing Firestone.
“They miscalculated on the investment they would have to make as well as the resistance to change in the Firestone management ranks,” one analyst said. In a 1990 interview, Bridgestone CEO Akira Yeiri—the man who engineered the acquisition—likened it to “swallowing a whale.”
Mr. Yeiri said if the company hadn't gone after Firestone when it did, it eventually would have been “relegated to being a regional manufacturer while our Japan business (even in the late 1980s) was shrinking as domestic auto makers had begun shifting more production overseas.” Twenty-five years later, Bridgestone is the world's largest tire manufacturer in terms of sales, owning an estimated 15-percent global market share. It operates 47 tire plants, all but 10 outside of Japan.
Looking back over the past 25 years, Koji Endo, managing director at Advanced Research Japan, said he believes the Firestone acquisition, despite some rough patches along the way, is the “most successful” in Japanese history.
This report originally appeared in Rubber & Plastics News, an Akron-based sister publication of Tire Business.