MEMPHIS, Tenn.—Del-Nat Tire Corp. has agreed to be acquired by TBC Corp. after determining 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, who has been acting as interim CEO since the departure in June 2014 of President Jim Mayfield and Vice President Lyle Symonds.
Mr. Grant is a restructuring expert with Conway MacKenzie Inc.
TBC has not yet commented publicly.
Financial and timeline details were not available at Tire Business' presstime.
In the shareholders letter, Del-Nat cited the countervailing duty rate of 81.29 percent on Shan-dong 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. 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/ whole-saler, 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.
Besides Sentinel, Del-Nat's other brands are Delta, National and Akuret. Del-Nat distributes nationwide from a 500,000-sq.-ft. distribution center in Memphis.
Among financial concerns cited in the Del-Nat letter to shareholders was unquantified indebtedness to U.S. Bank/U.S. Bancorp and other unsecured creditors.
Both TBC and Del-Nat have offices in Memphis.
Del-Nat stated last year its sales exceed $200 million annually.
The dealer cooperative 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.