NOVI, Mich.—A decision by Cooper Standard Holding Inc. to divest some of the company's plants in Europe and India is a case of addition by subtraction.
The move, involving its rubber fluid transfer and specialty sealing businesses in Europe and most operations in India, allows the Novi-based firm to rid itself of money-losing operations. So when the transaction with Mutares SE & Co. KGaA is complete, Cooper Standard immediately will become more profitable, Chief Financial Officer Jon Banas said in an interview with Rubber & Plastics News.
"Over the last several quarters, we've been discussing publicly a strategy to become smaller and more profitable in certain regions, mainly the European market," Banas said. "This is consistent with our longer-term strategy of exiting businesses that are not covering their cost of capital."
And for Cooper Standard, that has meant finding a way out of the fluid transfer business on the rubber side in Europe.
"It lacked the scale due to too much competitor capacity and irrational competition in the European market. The Indian business, for us, lacked scale and growth due to the overall stagnant economic development," the chief financial officer said.
Cooper Standard is not receiving any proceeds from the ownership transfer, but instead sees value in getting out from under the drag the operations are having on its bottom line.
Mutares, an investment firm based in Munich, said the deal will show off its turnaround expertise. "The acquisition would strengthen the Mutares Automotive segment and offers significant synergy potential to the Elastomer Solutions Group," Johannes Laumann, Mutares chief information officer, said in a statement.
Mutares will gain two rubber fluid transfer systems plants in Poland and one in Spain that supply automotive manufacturers. A factory in Italy that's part of the deal makes finished goods as well as compounds for specialty sealing products for the European operations. Mutares also will take control of seven locations in India making sealing, fuel and brake products and systems. An information technology development office in India is excluded from the deal.
The decision to divest comes after Cooper Standard undertook a strategic review of operations last year, Banas said. "Ever since we've been in the market, we haven't been able to make money just because of the lack of significant scale," the CFO said of Europe.
The operations being divested involve about 2,500 employees and sales of nearly $200 million in 2019. But they also cost Cooper Standard a loss of about $14 million in adjusted earnings before interest, taxes, depreciation and amortization.
"If you divest those operations, the money stops being burned up," Banas said.
Finding Mutares to take the operations off Cooper Standard's books also allows the company to avoid the potential cost of having to shut down the operations.