$1-Billion Pirelli Bid for Firestone Unit Reported : Proposal Would Get U.S. Firm Out of Tire Business
Italian tire manufacturer Pirelli is reportedly negotiating to buy the tire making operations of Firestone Tire & Rubber Co. for $1 billion, according to Italian newspaper reports.
A sale would continue the series of mergers and acquisitions among tire makers, which are trying to cut costs in the face of sluggish sales and stiff competition.
“The trend is definitely toward mergers,” said Bob Ulrich, assistant editor at Modern Tire Dealer magazine. “Everybody is preparing for the future. They want to be the survivors.”
A spokesman for Firestone would not comment on the reports, but the company clearly has been moving away from tire making--its mainstay business since it was founded 88 years ago. Firestone has been steadily building up its automotive repair operations while shutting down tire making plants. A decision on a Pirelli bid may come as early as today at a meeting of the Chicago-based company’s board of directors.
Eager to Expand
In Rome, Pirelli officials declined to confirm or deny the Italian media reports. Last October, Pirelli and Armtek Corp., the American company that makes Armstrong tires, broke off talks on a possible joint venture in the tire business.
But Pirelli, eager to expand its meager 1.5% slice of the nearly $14-billion U.S. market in auto tire sales, said in January that it was still seeking to acquire an American tire maker.
By acquiring Firestone, Pirelli would automatically become the second-largest seller of passenger car tires in the United States after Goodyear Tire & Rubber Co. and ahead of Michelin, according to Modern Tire Dealer magazine. Firestone is a major supplier of tires to Ford Motor Co.
By purchasing existing companies, tire makers such as Pirelli can avoid the expense of building new plants from scratch, said Ulrich at Modern Tire magazine.
The magnitude of the American tire market and the falling value of the dollar--which makes imported goods more expensive--have attracted other foreign tire makers. In the past few months, for example, Gencorp sold off its General Tire subsidiary to Continental Tire of West Germany.
‘Mature Industry’
Joint ventures, mergers and acquisitions have become commonplace in the tire industry as manufacturers worldwide grapple with the problems of slow growth. In the United States, tire makers have seen shipments grow only about 4% between 1984 and 1987. And growth is expected to stay flat during the next few years.
“It’s a mature industry,” said Jim Davis, managing editor of Tire Review. “There’s not a lot of growth out there.”
To boost sales and reduce costs, companies such as Michelin in France, Bridgestone in Japan and the United States’ Goodyear--the world’s leading tire maker--have expanded globally.
To compete with lower-cost foreign competitors, American tire makers, including Firestone, have cut costs by shutting down inefficient plants. “They (Firestone) have been more aggressive than anybody else in closing plants and reducing capacity,” said W. Dudley Heer, a tire industry analyst at Duff & Phelps Inc. The company has shut down about 10 plants since 1980.
Meanwhile, Firestone has moved away from its traditional role as a tire maker. Founded by Harvey S. Firestone in 1900, the company was a pioneer in the mass production of tires. Firestone forged a long-lasting business relationship with another pioneer of mass production--Henry Ford, who purchased 2,000 tires from the firm in 1906--that remains to this day.
But under the current leadership of Chairman John J. Nevin, Firestone has boosted the size of its automotive repair shops to about 1,500 as a way of boosting sales and profit. Nearly 20% of the company’s $3.9 billion in annual sales come from its retail operations.
The company has also relocated its headquarters away from Akron, Ohio--the traditional home of the nation’s rubber and tire making industry--to Chicago and plans to change its name to Firestone Inc.
“Firestone wants to be in less competitive, less cyclical businesses,” Heer said. “It wants to be more of a service business, where it has much better profit margins.”
