Goodyear and Sumitomo Rubber Industries, Ltd., to Form Global Alliance
3 February 1999
Goodyear and Sumitomo Rubber Industries, Ltd., to Form Global Alliance
NEW YORK, Feb. 3 -- Goodyear and Sumitomo Rubber Industries,
Ltd., or SRI, announced here today a far-reaching global alliance between the
two companies.
Goodyear and SRI, which has rights to the Dunlop brand in major world
markets, will form four joint venture operating companies -- one in North
America, one in Europe and two in Japan, and two synergy-focused support
ventures based in the U.S. -- one for global purchasing and one for sharing
tire technology.
A Memorandum of Understanding, signed by Sam Gibara, chairman, CEO and
president of Goodyear, and Naoto Saito, president of SRI, creates a unique
opportunity to integrate two global tire manufacturers, providing synergies
and efficiencies to produce and more widely distribute a broader variety of
higher quality tires at lower cost for consumers. The agreement is subject to
due diligence and approval by each company's Board of Directors.
Announcing the agreement, Gibara said: "This combination supports both
companies' strategic objectives for growth and cost leadership. As a result
of these ventures, both will be able to compete more effectively, improve our
performance through enhanced brand offerings, and generate benefits for our
customers, shareholders, associates and suppliers." He also said, "Goodyear's
top line also will benefit from the new products and distribution that SRI
brings to the alliance. This transaction is immediately accretive to Goodyear
as earnings per share. In addition, cost improvement and rationalization will
add a combined estimated $300-$360 million to the operating profits of the
joint ventures during the next three years."
Bringing together SRI's strength in Japan and its solid position in Europe
with Goodyear's acknowledged reputation in North America and Europe will make
the alliance a formidable player in the highly competitive tire industry and
lead both companies to a period of accelerated growth, according to SRI.
The operating joint ventures in North America and Europe will be owned
75 percent by Goodyear and 25 percent by SRI. In Japan, SRI will own
75 percent of two joint ventures and Goodyear will own 25 percent. Voting
rights will be shared 70:30. The difference between the value of the
respective businesses being consolidated and the agreed upon shareholding
ratios will be settled through a balancing cash payment of $936 million to be
paid by Goodyear to SRI at the date the joint ventures go into effect.
Separately, to demonstrate both parties' commitment to the overall
relationship, establishment of a cross-shareholding is planned. Goodyear
plans to acquire a 10 percent interest in SRI and SRI plans to acquire an
equivalent dollar value of Goodyear shares.
In addition, the operating joint ventures will be supported by two service
joint ventures. The first, involving technology sharing, will be 51 percent
owned by Goodyear and 49 percent by SRI. The second, for global purchasing,
will be 80 percent Goodyear-owned and 20 percent owned by SRI.
The North American joint venture will include SRI's tire operations in
North America with annual sales of $800 million. Goodyear's North American
tire group, including Kelly-Springfield and Canada, will operate outside the
joint venture, but will play a key role in making the venture successful
through Goodyear's distribution channels.
The European business venture will include the tire businesses owned by
both companies in Western Europe. The 1998 estimated combined sales for the
new European company would total $4 billion. As integration progresses, the
new joint venture will realize significant operating synergies and will build
on expanding its solid number two position in that region of the world.
Goodyear's operations in Poland, Slovenia, Turkey, Morocco and South
Africa will remain outside the alliance, as well as the company's European
Chemical Division in France and its mold, wire and fabric facilities in
Luxembourg. Similarly, SRI's non-tire European activities, such as
manufacture and sale of beds, car seats, precision rubber and wheels, will
remain outside the alliance.
For Goodyear, access to the Dunlop tire in the replacement markets in the
U.S., Canada, Mexico and Europe offers significant additional sales
opportunities.
In Japan, two joint ventures will be formed. The first venture will
supply both brands of tires to original equipment manufacturers. The second
venture will supply Goodyear brand tires to the replacement market through
SRI's and Goodyear's distribution channels. These ventures are expected to
result in market share growth for both companies. SRI's replacement tire
business in Japan remains outside the joint venture, as well as SRI's non-tire
divisions including sporting goods division and industrial rubber products
division.
Goodyear's tire and non-tire operations in Asia and Latin America will
continue to operate independently from the joint ventures, as will SRI's tire
and non-tire operations in Asia.
Definitive joint venture agreements are expected to be signed in May and
will be subject to approval by various government regulatory agencies,
including in the U.S. and European Union. The joint ventures are expected to
be operational by September 1, 1999.
As a result of this transaction, Goodyear's consolidated annual sales are
expected to increase by $2.5 billion or 20 percent.
SRI's consolidated sales will decrease, but the synergies created, coupled
with the joint ventures' efficiencies in various fields, will provide SRI with
a stable, increased profit. That will improve SRI's financial performance
and, in turn, corporate strength.
"This new alliance returns Goodyear to its leadership position in the tire
industry, strengthens Goodyear's leadership in North America, makes it a clear
number two in Europe, and provides it with a needed foothold in the important
Japanese automotive market," said Gibara.
SRI can expand sales volume and enhance Dunlop-brand quality and service
through benefits from the joint ventures. Improved competitiveness in cost
efficiency, product performance and technical development will benefit Dunlop
tires not only in the markets of Japan, North America and Europe, but also on
a worldwide basis.
Finally, the financial structure of the joint venture has been designed to
allow Goodyear to continue to have a strong balance sheet and maintain its
current financial flexibility.
Based in Akron, Ohio, U.S.A., Goodyear manufactures and markets tires for
most applications. It also manufactures and sells several lines of belts,
hose and other rubber products for the transportation industry and various
industrial and consumer markets, as well as chemicals for various
applications. In 1997, total Goodyear sales were $13.1 billion, with tire
sales of $11.9 billion, and it operated more than 80 plants in 32 countries
and employed approximately 95,000 associates.
SRI, based in Kobe, Japan, manufactures and markets tires for most
applications. The company also manufactures a wide range of sports and
industrial goods, both mainly rubber-based. It had total sales of
$4.7 billion and had tire sales of $3.6 billion in 1997. It operates
28 plants in seven countries and employs approximately 28,000 people.