Michelin Group to Buy Uniroyal Goodrich in a Deal Worth $1.5 Billion
Michelin Group said Friday that it agreed to buy Uniroyal Goodrich Tire Co. for $1.5 billion, including the assumption of $810 million in debt.
The deal brings still more consolidation to the increasingly competitive tire industry in a move that will leave Goodyear Tire & Rubber as the only major U.S.-owned tire maker. The purchase hands Michelin a bigger piece of the lucrative U.S. market and gives the French tire manufacturer an apparent lead in the three-way race with Goodyear and Bridgestone of Tokyo for world tire domination.
Under terms of the deal, Michelin will pay $690 million to Clayton & Dubilier, the New York-based investment banking firm that owns Uniroyal Goodrich, and assume the debt. The companies said they hope to complete the deal early next year.
“This is going to enable us to compete in new markets where we haven’t been previously represented,” Michelin spokesman Jim Morton said. Michelin’s technology “will enable Uniroyal Goodrich to improve their plant facilities and productivity, and that will ensure the long-term viability of the company.”
Will Gain Flexibility
Akron, Ohio-based Uniroyal Goodrich will be operated as a separate subsidiary of Michelin, Morton said. No management changes, layoffs or plant closings are planned, he said.
Uniroyal Goodrich began as a joint venture between Uniroyal and B. F. Goodrich in 1986. The year before, Clayton & Dubilier had taken Uniroyal private to thwart a hostile takeover attempt by corporate raider Carl Icahn. In 1988, Clayton & Dubilier, which specializes in management buyouts, bought Goodrich’s 50% share in the venture and financially restructured the company.
Analysts said Michelin’s purchase will bring it two well-known brands, a larger private-label business, in which a manufacturer’s products are sold under another name, and a bigger portion of the original equipment market, which is the supply of tires going on new cars and trucks at the factory.
“It gives them a little more flexibility,” said John B. Franck, a vice president with Provident National Bank in Philadelphia.
“It’s like the perfume market. They don’t ever cut prices, they just give you a purse with it,” the tire analyst said. “Michelin never wanted to cut prices on its premium line so now they have something they can cut prices on.”
Franck estimated that the merger will give Michelin 22% of the world market, compared to about 19% for Goodyear. Michelin moves into the No. 2 spot in U.S. sales, supplanting Bridgestone, said Lloyd Stoyer, editor of Modern Tire Dealer, a trade magazine.
Michelin reported overall sales of $8.7 billion last year while Uniroyal Goodrich recorded sales of $2.2 billion. Goodyear’s sales totaled $10.8 billion.
Despite its denials, Michelin may be forced to close factories, said Dudley Heer, an analyst with Duff & Phelps, a Chicago investment firm.
The factories are “old and out of date,” the tire analyst said. “Tire making is very capital intensive and you constantly have to replace the tire making machinery and everything else.”
It is just that sort of investment that drove many U.S. companies out of the tire business, especially in the face of fierce foreign competition, analysts said. Profits dropped after the introduction of the long-lasting radial tire in the 1960s.
Uniroyal Goodrich employs 18,500 people and operates nine tire factories in North America. Michelin, based in Clermont-Ferrand, France, has been making tires in the United States since 1975.
MERGERS IN THE TIRE INDUSTRY
TARGET BUYER PRICE DATE Uniroyal Goodrich Tire Michelin Group $690 million September, 1989 Co. Firestone Bridgestone $2.6 billion March, 1988 Armstrong Tire Pirelli Group $190 million April, 1988 & Rubber General Tire & Rubber Continental A.G. $650 million October, 1987 B.F. Goodrich Tire Uniroyal $225 million December, 1986 (joint venture)* Dunlop Tire Sumitomo Rubber $245 million December, 1986 Industries Uniroyal Clayton & Dubilier $951 million September, 1985
* In 1988, Clayton & Dubilier bought out Goodrich’s interest in the joint venture for more than $225 million.
The worldwide tire market had sales of $12.6 billion in 1968. Uniroyal Goodrich 4.3% Michelin 18.1% Bridgestone 16.5% Goodyear 18.3% Other 22.7% Continental 7.3% Pirelli 6.9% Sumitomo 5.9% Sources: Rubber & Plastics news; industry estimates