Pirelli Makes a $1.9-Billion Offer for Firestone
Firestone Tire & Rubber Co. found itself Monday in the middle of an international tug of war between Italian and Japanese industrial giants.
On Monday, it was Italian tire maker Pirelli that launched a $1.9-billion takeover bid for the tire company, once a symbol of America’s industrial power. Only three weeks ago, Bridgestone Corp. of Japan agreed to pay $1.25 billion for 75% of Firestone’s tire business.
The battle for Firestone is part of fight among tire makers for worldwide dominance, a fight in which only a handful of companies may survive, analysts said. “If you are going to be one of those, you’ve got to have a top position in North America,” said Donald F. DeScenza, a securities analyst with Nomura Securities.
The news sent Firestone stock soaring, amid speculation that Bridgestone would make a counteroffer.
In its bid, Pirelli said it would sell off Firestone’s chain of auto repair shops--Master Care--and Brazilian tire operations to Michelin of France. Pirelli would hold onto the company’s tire factories, which will continue to make tires under the Firestone brand.
If successful, Pirelli stands to substantially increase its meager share of American tire sales and gain much needed U.S. tire factories. “Pirelli would get what other companies want--manufacturing facilities in this country,” said Lloyd Stoyer, editor of Modern Tire Dealer, an industry trade magazine. “They would also get much better distribution.”
Pirelli offered $58 in cash for each of Firestone’s 32 million shares of common stock. The offer, which expires April 1, also urged shareholders to reject an agreement reached last month that would sell 75% of Firestone’s tire business for $1.25 billion to Bridgestone.
On the New York Stock Exchange, Firestone stock soared $13.50 a share to close at $63.125. “That tells me that the speculators are all believing that Firestone is worth more than $58 a share to either of those companies (Bridgestone and Firestone),” DeScenza said. He estimates that Firestone is worth about $75 a share and that higher offers are forthcoming.
Bridgestone and Firestone executives would not comment on the Pirelli bid. “We will have no official comment until the board of directors reviews the situation,” Firestone spokesman Robert Troyer said. The company said the board will decide March 18 what to do about the Pirelli bid and urged stockholders to wait until then.
Pirelli’s offer marks its second attempt to win over Firestone, which has been selling off tire factories while expanding its auto repair business. Pirelli and Firestone executives met on Feb. 9 to discuss a merger or joint venture. But Firestone instead announced its agreement with Bridgestone.
“Rather than choosing to negotiate with us, you announced on Feb. 16 your intention to pursue a joint venture with Bridgestone,” Pirelli told Firestone Chairman John Nevin in a letter released Monday. “Accordingly, we have had no choice but to present a proposal directly to your shareholders,” the Pirelli letter said.
Before its interest in Firestone, Pirelli had earlier attempted--and failed--to form a joint venture with Armtek--maker of Armstrong tires.
Pirelli’s bid for Firestone comes as tire makers worldwide are trying to cope with sluggish sales. In the United States, for example, tire makers have seen shipments grow only 4% between 1984 and 1987. Sales are expected to stay flat for the next few years.
In an effort to cut costs and boost sales, companies such as Pirelli, Bridgestone and Goodyear Tire & Rubber Co. have expanded globally. The size of the American market and the falling value of the dollar--which makes imported tires and other goods more expensive--have attracted foreign tire makers. Continental AG of West Germany, for example, paid $650 million for Gencorp’s tire subsidiary.
The intense competition has forced some tire companies, such as Firestone, to consider other industries. Firestone, under its agreement with Bridgestone, would keep its fast growing chain of auto repair shops.
It recently moved its headquarters to Chicago from Akron, Ohio--the traditional home of the nation’s tire industry--and plans to change its name to Firestone Inc.
Pirelli--which sold about $5.5 billion worth of tires, rubber products and electrical cable worldwide in 1987--began selling tires in the United States 25 years ago. Most of the Pirelli tires sold here are regarded as high-performance products--they are made to withstand high rates of speed for extended periods of time.
Pirelli, which currently sells mostly high-performance tires in the United States, claims only 1.5% of the $14 billion that American consumers spend annually on auto tires, according to Modern Tire Dealer. Firestone, in contrast, has a 9% share--placing it second behind industry leader Goodyear.
But Pirelli’s limited line of tires have stunted its sales in the United States, DeScenza says. “A tire dealer says ‘I want a full line,’ ” DeScenza said. “But most of the foreign companies don’t have these full lines.”
As part of its offer, Pirelli would sell Firestone’s line of auto repair shops for $650 million to Michelin. The French company would also receive a 50% option to pay $150 million for Firestone’s synthetic rubber and other operations.
DRIVING TAKEOVERS HOME
Major completed mergers in the tire and rubber industry since 1984. Dollar figures in millions. Source: IDD Information Services
Date Target Acquiror $ Value Sept. 1985 Uniroyal Acquisition Group 951.0 Oct. 1987 General Tire Continental Gummi-Werke 650.0 March 1987 Goodyear Aerospace Loral 588.0 June 1986 Sheller-Globe Acquisition Group 494.0 March 1984 Cone Mills Acquisition Group 385.0 Sept. 1987 Day International M.A. Hanna 348.9 May 1986 Newreeveco Schick 262.0 Dec. 1986 Dunlop Tire Sumitomo Rubber Industries 245.0 July 1987 Clevite Industries Pullman 239.3 Dec. 1986 B.F. Goodrich Tire Uniroyal Tire 225.0 April 1987 Motor Wheel Acquisition Group 185.0
