Goodyear, SRI dissolving global alliance

By Bruce Davis, Tire Business staff

AKRON/KOBE, Japan—Goodyear and Sumitomo Rubber Industries Ltd. (SRI) have agreed to dissolve their 16-year-old global business alliance, with Goodyear to pay SRI $271 million initially and repay $55 million in debt owed SRI in three years' time.

The agreement resolves a 15-month-old dispute between the two companies that involved charges and countercharges of breaches of the alliance's agreements.

Goodyear alleged SRI had engaged in “anticompetitive conduct in violation of applicable antitrust laws” and SRI subsequently filed counterclaims alleging “various breaches of the global alliance agreements” by Goodyear.

Both companies said this agreement will allow them to avoid the cost and uncertainty of arbitration to resolve their differences.

Through the agreement Goodyear secures the rights to sell Dunlop-brand consumer and commercial tires in the replacement markets in North America and the replacement and OE markets throughout most of Europe.

Sumitomo said the agreement will give it a “greater degree of autonomy” over its business, including OE tire business with Japanese car makers, motorcycle tires globally except for Europe, and will allow the tire maker to establish its own manufacturing and research/development facilities in North America and Europe.

Sumitomo also noted the deal will help it build the Falken brand into a stronger, more global brand.

It also said the “impact of the dissolution of the alliance agreement and the joint ventures on SRI's financials is under review and will be announced once it is identified.”

Goodyear and SRI formed the global alliance in 1999.

At that time, Goodyear paid Sumitomo $936 million to settle the difference between the value of the respective businesses being consolidated and the agreed-upon shareholding ratios.

Other aspects of the agreement include:

• Goodyear will retain exclusive rights to sell Dunlop-brand tires to non-Japanese vehicle makers in North America;
• Goodyear will acquire SRI's 25-percent interest in Goodyear Dunlop Tires Europe B.V., including six tire plants, in Amiens and Montlucon, France; and Furstenwalde, Hanau, Riesa and Wittlich, Germany.
• Goodyear's Dunlop-brand rights in Europe cover motorcycle and racing tires in addition to consumer and commercial tires;
• SRI will obtain exclusive rights to sell Dunlop-brand tires in certain countries that  were previously non-exclusive under the global alliance, including Russia, Turkey and certain countries in Africa. SRI has a plant under construction in Turkey and in late 2013 acquired the Dunlop-brand rights throughout most of Africa and the Middle East from Apollo Tyres Ltd.
• Goodyear will acquire SRI's 75-percent interest in Nippon Goodyear Ltd., which serves the replacement market in Japan with Goodyear-brand tires.
• SRI will acquire Goodyear's 25-percent interest in Dunlop Goodyear Tires Ltd., which serves the OE market in Japan with Goodyear- and Dunlop-brand tires.
• Goodyear will regain exclusive rights to serve the Japanese replacement and OE  markets with Goodyear-brand tires, a business channel Goodyear noted has been under Sumitomo's control for the past 16 years.
• SRI will continue to have exclusive rights to sell Dunlop-brand tires in the Japanese replacement and OE markets.
• The SRI Global Purchasing Co. (SRI 20 percent/Goodyear 80 percent) and Goodyear — SRI Global Technology L.L.C. (SRI 49 percent/Goodyear 51 percent) will be dissolved as part of the agreement.

As a result of the agreement, Goodyear will also sell its 3.4 million shares of SRI common stock, which could result in a gain of roughly $59 million, based on current share prices.

Goodyear said it expects the transaction to be accretive to its earnings beginning in the first quarter of 2016.

Based on the company's 2015 operating plan, Goodyear said it should realize an annual benefit to adjusted net income of approximately $40 million to $50 million, or 15 to 18 cents per share.

The transaction is subject to customary closing conditions, including the receipt of regulatory approvals as well as SRI's completion of a labor agreement with the United Steelworkers union for the Tonawanda plant, the companies said.

Goodyear said it will hold a conference call with analysts on June 5 to discuss the agreement.