Yokohama to acquire Trelleborg Wheel Systems in $2.3 billion deal

TRELLEBORG, Sweden—Trelleborg A.B. has agreed to sell its Trelleborg Wheel Systems (TWS) business to Yokohama Rubber Co. Ltd. (YRC) for $2.3 billion in a cash and debt free basis.

The deal comes three months after speculation surfaced that the Japanese tire maker was interested in acquiring the Trelleborg unit, which generated $1.17 billion in sales last year on the sale of agricultural tires and wheels.

The transaction, which in effect will double the size of Yokohama Rubber's off-highway tire business, is set for completion "in the latter part of 2022" subject to regulatory approvals, the companies disclosed in separate announcements.

Yokohama Rubber said the acquisition will contribute to the expansion of its off-highway tires (OHT) business, which accounted for $977 million in sales last year and which YRC sees as a "future growth driver."

Yokohama's target now is to improve the ratio of consumer tire sales to commercial tires, which stands at 2:1 now, which would help bring the sales composition of the group's tire business more in line with the overall market and secure earnings growth.

The deal builds on YRC's mid-2016 purchase of off-road tire maker Alliance Tire Group, which has since bolstered group sales by around 20 percent.

YRC said it believes the acquisition will provide it with a more complete product brand structure, strengthen its service network, contribute to digital transformation, broaden its regional sales network and boost its sales of OE tires.

Adding TWS to its off-highway tire business provides YRC with a more complete brand lineup of tires for agricultural and construction machinery that will cover all brand categories, from basic to standard and premium brands.

In addition, Yokohama's service network will be strengthened by TWS' proprietary tire maintenance service that provides after-sales service for industrial-use tires at 82 locations in 21 countries. YRC said it plans to expand that service to agricultural tires.

In the digital area, TWS is developing a remote system for monitoring tire air pressure and temperature. Yokohama Rubber has been developing a similar system, and the two companies will collaborate to develop a more convenient and efficient remote monitoring service.

According to its statement, adding Trelleborg Wheel also will help strengthen YRC's commercial tire business in terms of product lineup, cost, service and digital transformation.

Trelleborg has 10 tire plants in seven countries on three continents—China, Czech Republic, India, Italy, Serbia, Sri Lanka and the U.S.—and four wheel plants in four nations.

Of tires manufactured and sold by Trelleborg, agricultural tires account for about 60 percent, industrial tires about 20 percent, with the remainder being tires for construction machinery and motorcycles. The company does not break down its sales by tires versus wheels.

Trelleborg Wheel Systems has more than doubled in size and substantially increased its profitability in the past several years, Trelleborg said, buoyed by the acquisition of CGS Holdings (Mitas tires) in mid-2016.

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

Divesting TWS also will help Trelleborg improve its profitability and make its overall business less cyclical.

"Our ambition is to grow Trelleborg into the world's foremost engineered polymer solutions company in our selected industries," Trelleborg Group President and CEO Peter Nilsson said.

Those industries, he added, include health care and medical, automation and aerospace, as well as in specialty industrial applications.

"Moreover, we see a great potential to expand into adjacent products and solutions that complement and strengthen our existing offering," Nilsson said, noting that the divestment created "a more coherent portfolio."

Trelleborg ranked as the No. 9 largest manufacturer globally of non-tire rubber products, with $2.61 billion in 2020 sales, according to Rubber News' latest rankings data.

In North America, Trelleborg Wheel reported revenue of $199 million last year, or 17 percent of the unit's global revenue. The company operates tire factories in Charles City, Iowa, and Spartanburg, S.C. Yokohama's OHT business generated nearly $493 million in sales in North America last year, up 26 percent over 2020.

Globally, Yokohama ranked as the No. 8 tire maker with $4.35 billion in 2020 sales, according to Rubber News Global Tire Report. Trelleborg ranked No. 33 in tires sales with tire revenue of $765 million.

This story will be updated as more information becomes available.