Michelin, TBC to combine wholesale businesses

GREENVILLE, S.C. — Michelin North America Inc. (MNA) and Sumitomo Corp. of America (SCOA) have agreed to combine Michelin's wholesale distribution activities with TBC Corp.'s wholesale assets in a venture to be called National Tire Wholesale (NTW).

The new venture — which the new partners said would become the second-largest player in the U.S. wholesale tire market — will be considered an operating unit of TBC, which will be owned 50-50 by Michelin and SCOA.

The NTW business will combine Michelin's 85 TCi Tire Centers and TBC Corp.'s 59 Carroll Tire wholesale distribution locations.

Together the businesses will distribute nearly 15 million tires, valued at an estimated $2 billion-plus.

American Tire Distributors Inc. is considered the largest U.S. wholesaler, with distribution of 32 million tires annually and sales in excess of $5 billion.

The deal, which also includes TBC de Mexico, is subject to customary approvals and could close in the first quarter. Michelin will pay SCOA $630 million in addition to the TCi Wholesale assets to the venture to match the $1.52 billion in "enterprise value" of TBC's assets.

Michelin Chairman and President Scott Clark told Tire Business that TBC's retail business is unaffected by the creation of the joint venture.

"The focus for us has been increasing the size and scale of the brand offering and geographic footprint of the wholesale business through NTW," Mr. Clark said.

"Our retail strategy will not change whatsoever. Our retail strategy has been and has always been and will continue to be to invest in our brands, invest in products and to make our brands available across a wide variety of channels and types of customers where consumers choose to shop. And that will not change with this."

This new company "will provide better availability of tire products at all price points across North America, achieving greater scale in wholesale delivery for customers," Michelin said, as well as enable the companies to enhance service quality, capacity and speed for customers.

Erik Olsen — currently president and CEO of TBC — will continue as CEO of the reconfigured TBC when the transaction closes, while Don Byrd — president and COO of TCi — will become president and COO of NTW. Mr. Byrd will report to Mr. Olsen under the TBC management structure.

Jim McCullough, vice president and general manager of TBC's Carroll Tire unit, will become senior vice president and national sales manager of NTW, TBC said.

"This partnership with SCOA will better position us to serve our retail customers and ensure that consumers have access to our products when and where they need them," Mr. Clark said.

"With this partnership, we can offer an expanded geographic footprint, a broader breadth and depth of product choices and better availability and increased delivery frequency. It will also allow us to provide better and faster service to our direct customers through an enhanced delivery service program."

Sam Kato, senior vice president and general manager of SCOA's Auto and Aerospace Group, added: "This joint venture further supports our mobility strategy in this new, dynamic era in the automotive landscape.

"In addition to the competitive edge this joint venture provides in the distribution arena, we believe Michelin's successful experiences in mobility services will add value to TBC. SCOA will continue to pursue investments, which support our goal of integrated mobility solutions, such as this."

From TBC's point of view, the goal of combining TCi and Carroll Tire is to create an "organization that's nimble, able to serve a multitude of constituencies, be it fleets, car dealers, e-commerce, independents, franchise networks, whatever," Mr. Olsen told Tire Business.

"Tomorrow's wholesaler has to be a logistics expert and be nimble."

The creation of NTW — a brand name that TBC has owned for decades but which has been idle — "enhances our mission statement of the past 60 years," Mr. Olsen said, "by offering the possibility of an even higher level of service than today."

The two wholesale businesses do overlap geographically in a number of markets, Mr. Olsen acknowledged, but it's too early to comment on how those situations will be handled. There also are quite a few markets where neither TCi nor TBC has a market presence, he added.

Perhaps more importantly, TBC is gaining 85 distribution points that currently don't handle much if any inventory in the medium truck, agricultural, OTR and/or industrial tire categories, Mr. Olsen noted.

The deal comes just months after TBC sold 44 retail stores in the upper Midwest and divested the Speedee Oil Change & Auto Service franchise business and a few years after SCOA booked a $181 million impairment loss to cover sub-par operating performances by TBC in 2013-14.

Michelin noted, however, in a financial presentation that TBC Corp. was profitable in 2016, reporting pre-tax operating income of $166 million on sales of $3.23 billion.

SCOA said the cash it will receive from Michelin will be used to expand the venture's business.

In their joint prepared statement on the deal, the partners said the venture will offer a number of strategic benefits, including:

• Becoming a more competitive player in the growing North American tire wholesale and auto services sector, enabling growth in critical North American markets;

• Combining distribution, reach and speed for satisfying the needs of online consumers more effectively;

• Providing a foundation for coast-to-coast coverage of car and light truck service providers, addressing trends of growth in fleet maintenance and increasing complexity of service requirements and tire sizes; and

• Increasing the companies' market share and operational scale, positioning the venture for faster growth.

Dave Zielasko, Tire Business editorial director, contributed to this article.