Del-Nat agrees to TBC buy-out offer

MEMPHIS (Jan. 2, 2014) — Del-Nat Tire Corp. has agreed to be acquired by TBC Corp. for an undisclosed price, after Del-Nat determined that its future was jeopardized by the U.S. government's elevated countervailing duties on imported Chinese passenger and light truck tires.

Del-Nat disclosed its intent to sell to TBC in a Dec. 31 letter to its stockholders, signed by Brian Grant, interim CEO. TBC has not yet commented publicly on Del-Nat's announcement, saying it will wait until all legal and financial documentation is completed.

Del-Nat said it expects the deal with TBC to close Jan. 16.

In the letter it cited the countervailing duty rate of 81.29 percent on Shandong Yongsheng Rubber Group, which produces most of Del-Nat's Sentinel-brand tires.

The terms of the countervailing duties include a 90-day retroactive liability, which Del-Nat said in its case would total about $4 million and its exposure potentially could increase, depending upon the results of the U.S. Commerce Department's anti-dumping investigation, which are expected to be announced in January.

“In light of these extraordinary events and their impact on the 2015 forecast and business plan,”Del-Nat's statement reads, “the board of directors immediately began evaluating all possible options after the announcement was made. 

“The options considered have included but have not been limited to a dramatic scale-down of the business model, a refinancing and/or capital raise, a strategic sale and an orderly liquidation,” Del-Nat said.

Since Del-Nat already was in the midst of an internal financial review related to its earlier disclosed turnaround plan, “we were able to quickly canvass the market and talk with interested financing sources and strategic buyers,” Del-Nat said.

The Memphis-based private brander/wholesaler, which marked its 25th anniversary last year, said it signed non-disclosure agreements with eight interested parties and then received two letters of intent — one from a high-yield capital source and one from TBC.

“Overall, we are confident that all possible options were identified and appropriately vetted, particularly given the time constraints.”

From both a stockholder and group perspective, Del-Nat's board — after discussions with strategic parties that included both competitors and suppliers — felt that TBC was the best fit.

From a financial perspective, Del-Nat said accepting TBC's offer likely will produce proceeds sufficient to satisfy the firm's indebtedness to U.S. Bank/U.S. Bancorp. Del-Nat did not quantify its indebtedness.

Furthermore, Del-Nat said, the sale of the excluded assets and the collection of accounts receivable should be sufficient to provide for full repayment to the unsecured trade creditors, and the timing of the deal will allow for creditor payments on an expedited time frame. 

According to Del-Nat, TBC has indicated it will continue to produce and supply the Delta, National, Sentinel and Akuret brand programs and preserve much of the Del-Nat structure as a unique group under the TBC umbrella. 

Additionally, TBC transaction also has offices in Memphis and has indicated to Del-Nat it wants to retain a number of the Del-Nat employees.

Del-Nat stated last year its sales exceed $200 million annually.

Del-Nat is a stockholder-owned corporation; last year it said it had 84 stockholders.

Palm Beach Gardens, Fla.-based TBC conducts its wholesale business principally through its Carroll Tire Co. and TBC Brands business units. Annual wholesale revenue is estimated to exceed $1 billion. 

TBC's proprietary brands include: Cordovan, Duck Commander, DynaCargo, ElDorado, Harvest King, Jetzon, Multi-Mile, Power King, Sigma Telstar, Towstar, Towmax, Trailer King and Vanderbilt. The company also is the exclusive importer/distributor of the Sailun and Sumitomo brands.

TBC Wholesale claims its core brands represent more than 6 percent of the North America replacement passenger/SUV/light truck market and more than 5 percent of the replacement medium truck tire market, according to a presentation by its parent company, Sumitomo Corp.