Chengshan to buy Cooper's share of China JV

FINDLAY, Ohio (Oct. 8, 2014) — China's Chengshan Group Co. Ltd. plans to exercise its option to acquire Cooper Tire & Rubber Co.'s 65-percent ownership stake in their Cooper Chengshan (Shandong) Tire Co. Ltd. venture, Cooper Tire said today.

Cooper did not at this time disclose the value of Chengshan Group's offer. Earlier, though, an independent firm hired to establish the fair market value of Cooper Chengshan (Shandong) Tire determined the Chengshan, China-based joint venture was worth approximately $440 million.

Cooper said it is reviewing the notice and documentation provided by Chengshan to confirm that all of the requirements under the August 14, 2014, option agreement have been met.

Cooper also said the option agreement includes provisions for commercial offtake production by Chengshan of  Cooper-brand products — including Roadmaster truck tires — through mid-2018.

CCT has a rated capacity of 15 million tires a year, including 5 million radial truck/bus and 8 million radial car tires, according to the venture's web site. Employment stands at more than 5,000. The plant has earned TS16949, ISO14001 status and the venture's tire testing center has and ISO17025 certificate.

“Delivery of the exercise notice is one of several steps necessary prior to any transaction,” said Cooper Chairman, CEO and President Roy Armes. “Cooper is committed to meeting the needs of our customers and continuing to grow in China.

Mr. Armes also said the purpose of the offtake agreement is to “assure a secure supply of Cooper-brand products, while also giving us the flexibility to enter into acquisitions, new offtake relationships, or possible greenfield development of additional production capacity anywhere around the world to support the continued expansion of our business.

“China is a core growth market for Cooper and we have a strong track record of success in the region,” Mr. Armes added. “To support our strategic plans there, we expect to continue to invest in our sales and marketing organization, our rapidly growing distribution network, and the strong technology capability we have in place.”

Mr. Armes also said Cooper expects to continue investing in its wholly owned Cooper Kunshan Tire operation.

“We look forward to final resolution of the ownership of CCT as we continue to pursue our global growth objectives,” He added.

Cooper did not indicate at this time what it would do with the proceeds of the transaction.

One option Cooper might be considering would be to buy back shares, according to Robert Higginbotham, an analyst with New York-based SunTrust Robinson Humphrey Inc.

Mr. Higginbotham also said SunTrust expects the offtake production deal could mean a negative impact on earnings of up to 5 percent.