Trelleborg Wheel Systems sale to Yokohama delayed

TRELLEBORG, Sweden—The Trelleborg A.B. deal to sell its Trelleborg Wheel Systems business to Yokohama Rubber Co. Ltd. that was expected to close by the end of 2022 won't be completed until sometime during the first half of 2023.

Both firms issued news releases Dec. 27 saying that the $2.3 billion deal agreed to in March still needs to secure regulatory approval in a number of nations, delaying the expected closing.

A Trelleborg spokeswoman told Rubber News that the European Union and the United Kingdom are markets where approvals still are needed.

"In connection with Trelleborg's third-quarter interim report, it was communicated that regulatory approval in a number of countries is still pending, and that the divestment of Trelleborg Wheel Systems was expected to be finalized within the next few months," Trelleborg said in its Dec. 27 release. "Trelleborg now wishes to clarify that the divestment will not be completed before year-end but is instead expected to take place during the first half of 2023, likely in the first months of the year."

Yokohama said in its release that the completion of reviews by the "competition law authorities of each country and region," and the expected time it will take to complete these reviews made it necessary to delay the closing. The Japanese tire and rubber product maker added that the change in timing of the acquisition's completion will have little impact on the company's fiscal 2022 consolidated financial results.

"Yokohama Rubber will promptly provide notification of the exact date of the share transfer once decided and any other related events that may emerge."

When the deal was announced in late March, it was hailed as a transaction in which Yokohama could make its tire operations less dependent on consumer tires, while Trelleborg was selling a business it believed was at the top of its valuation, freeing the company up to focus on its non-tire rubber businesses.

The Trelleborg Wheel Systems business generated $1.17 billion in revenue in 2021 on the sale of agricultural tires and wheels. It generated 69 percent of its business in Europe in 2021, followed by North America at 18 percent, Latin America at 6 percent and the rest of the world 7 percent.

The sale in effect will double the size of Yokohama Rubber's off-highway tire business. Yokohama Rubber's off-highway tires business accounted for $977 million in sales last year and is a unit YRC sees as a "future growth driver."

After considering different alternatives for TWS, Trelleborg management concluded that divesting at this valuation would generate the most shareholder value and creates exciting opportunities going forward.

Trelleborg said in its Dec. 27 release that the $2.3 billion price was a figure "13 times the business area's 2021 operational EBITDA, or 17.5 times 2021 EBIT." The firm said the transaction will result in an estimated capital gain of nearly $575 million.

The Swedish firm said divesting TWS also will help Trelleborg improve its profitability and make its overall business less cyclical. TWS accounted for 30 percent of group sales, but contributed just 22 percent of EBIT, according to Trelleborg.

TWS has posted strong financial results in 2022, reporting double-digit gains in earnings and sales for the third quarter and first nine months of the year. It had a 29.8-percent jump in operating income for the quarter to $29.3 million on 33-percent higher sales of $299 million, despite weakening aftermarket demand for agricultural tires in Europe.

For the January-September period, operating income was up 42.6 percent to $135.3 million on 34.9-percent higher sales of $998 million.

Even before the sale of Trelleborg Wheel Systems goes through, Trelleborg has made a number of deals that are expected to boost its remaining Trelleborg Sealing Solutions and Trelleborg Industrial Solutions business units.

For example, in April Trelleborg announced the acquisition of EirMed L.L.C., based in Menomenie, Wis., a producer of medical devices through plastic injection molding. And in late October, Trelleborg finalized the $860 million acquisition of Minnesota Rubber and Plastics L.L.C., which saw sales of about $262.2 million in 2021, according to Trelleborg.