Titan's Taylor: 'We trump everybody' in farm tyres

By William Schertz, ERJ staff report (TB)

Quincy, Illinois -- Goodyear's European and Latin American farm tyre businesses represent potential annual sales of $750 million to $900 million for Titan International Inc., Chairman and CEO Maurice Taylor Jr. told financial analysts this week about Titan's pending purchase of the businesses.

“With this acquisition we're doing, it pole vaults us to the largest in farm worldwide,” Taylor told investors during a Dec. 15 conference call. “We trump everybody.”

The deal, subject to customary closing conditions and regulatory approvals, would give Titan Goodyear's plants in Sao Paulo, Brazil, and Amiens, France, both areas where Taylor said he believes Titan can increase business dramatically.

“The Goodyear brand's a good brand, there's no ifs, ands, buts about it. But we do believe with our concentration and our knowledge we can increase it,” he said.

Titan is on target to generate $850 million to $900 million in sales this year and up to $1.1 billion next year, without this acquisition, Taylor said recently.

“Theoretically, if we do everything we're trying to do in two years, these acquisitions could grow to someplace close to $750 million to $900 million in added revenue for us,” Taylor said. “Coming out of the chute, once you own them both, you're looking at $400 million to $450 million.”

Taylor estimated that with the Latin American business alone the firm can add between $400 million and $500 million in annual revenue within the next 18 to 24 months.

This estimate, he said, is a combination of current farm tyre sales in the area, forecasted additional revenue from Titan's radial OTR tyres - which it plans to produce at the facility - and between $100 million and $150 million annually that Titan likely will earn from an off-take agreement building medium truck bias and light truck tyres for Goodyear.

He added that the company would like to increase its ability to produce earthmover construction tyres “as fast as we can” because the mining segment in South America is growing rapidly. In addition, the company plans on expanding its wheel business into Latin American to produce wheels up to 54 inches for OE manufacturers.

Titan's purchase price for the Latin American farm business comes in at about $99 million, which Taylor said includes about $43 million for the plant and equipment; $13 million for inventory; $13 million in prepaid royalties for a license allowing Titan to sell Goodyear-brand farm tyres in Latin America; and $30 million in prepaid royalties for Goodyear's North American farm business, which it bought along with a Freeport, Ill., plant in 2005.

As part of the deal, Goodyear will maintain complete control of its aircraft tyre business, Taylor said, which will remain on-site.

“They will be leasing that space from Titan,” he said. “Everything else we will be running ourselves. We'll (also) have a take-off agreement with Goodyear's Columbian tyre facility, which will make certain small farm tyres for us.”

Taylor said Titan plans to close on the deal for the Sao Paolo plant with Goodyear on March 31, but “we're at the mercy of various government regulations of getting approval.”

The deal for the Amiens North plant is not expected to close until the latter part of 2011, Taylor said. Total cash outlay from Titan will be about $30 million, which includes about $12 million for the facility, equipment and inventory and approximately $18 million in prepaid royalties for a licensing agreement that will allow Titan to make and sell Goodyear-brand farm tyres in Europe, Africa and Russia.

“European farm sales have been approximately around $150 million, whereas two years ago they were up over in the range of $270 million,” Taylor said. “We believe we can get this business back up into that range.

“In order to do that, we're going to have to not only push the new products, but also look at producing at this facility the OTR radial tyres, because Europe's real big in that.”

The deal will include an off-take agreement allowing Goodyear to produce tyres for Titan in Poland, Turkey and South Africa and an additional agreement allowing Goodyear's Asian business to buy farm tyres from Titan if needed.

Goodyear will continue to make and sell farm tyres in Asia/Pacific, where it has capacity in place at plants in India, Indonesia and Malaysia.

Completing the deal in France still depends on Goodyear's completing a social plan related to the previously announced discontinuation of consumer tyre production at the Amiens plant and required consultation with the local works council.

Taylor said that plan calls for capping the workforce at 537 employees, less than half of the approximate 1,400 jobs he said are active at the factory.

Taylor said the union negotiations are primarily “Goodyear's problem,” but, “we did meet with the union and we told the union here's what we're going to do, we think. If the sales level does not increase and we don't get to where we want, we will have a social plan filed and we will have a reduction.

“We don't want to-you make more money if you can make product and sell, and you got more product and more jobs-but you have to be a realist, too,” he said. “France is getting a little on the hard side. (Goodyear) is going to get their social plan and they're going to pay these people a lot of money to leave.”

Taylor said if, for whatever reason, Goodyear can't get the reduction deal approved, then “we don't have to follow through” with that end of the agreement. He added that owning the plant without a union labor agreement in place “would be like heaven divine” but that it can't happen.

According to Taylor, the deal for Goodyear's European and Latin American farm business won't require a large capital investment in addition to the purchase price because Titan already has acquired much of the equipment it needs.

“One thing everybody knows is that for years at Titan there are times when certain equipment comes up and we buy it and we store it,” he said.

Goodyear has been seeking a buyer for these assets since May 2009. Titan offered to buy the European business in September 2009 and has been in talks with Goodyear since.

The sale will reinforce Goodyear's focus on its core consumer and commercial tyre businesses, said Richard Kramer, Goodyear chairman and CEO.

From Tire Business (A Crain publication)