QUINCY, Ill.—Titan International Inc.'s top executive believes the firm's pending $130 million deal to buy Goodyear's European and Latin American farm tire businesses eventually could boost Titan's annual income by $750 million or more.
The acquisition could turn Titan into the “premier farm tire manufacturer,” according to Maurice Taylor Jr., the company's chairman and CEO.
“With this acquisition we're doing, it pole vaults us to the largest in farm worldwide. We trump everybody,” he said.
The sale, subject to customary closing conditions and regulatory approvals, will give Titan Goodyear's plants in Sao Paulo, Brazil, and Amiens, France, areas where Taylor anticipates Titan can dramatically increase business.
“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.
Goodyear has been seeking a buyer for these assets since May 2009. Titan offered to acquire the European business in September 2009 and has been in talks with Goodyear since then.
The divestiture will reinforce Goodyear's focus on its core consum-er and commercial tire businesses, according to Richard Kramer, the tire maker's chairman and CEO.
Titan was on target to generate $850 million to $900 million in sales for 2010 and up to $1.1 billion in 2011, without this acquisition, Taylor said.
“Theoretically, if we do everything we're trying to do in two years, these acquisitions could grow to some place 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 estimates 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 projection, he said, is a combination of current farm tire sales in the area, forecasted additional revenue from Titan's radial OTR tires—which it plans to produce at the facility—and between $100 million and $150 million annually that Titan probably will earn from an off-take agreement building medium truck bias and light truck tires for Goodyear.
He said the company wants to increase its ability to produce earthmover construction tires as fast as possible because the mining segment in South America is growing rapidly. In addition, Titan plans on expanding its wheel business into Latin American to produce wheels up to 54 inches for original equipment.
Titan's purchase price for the Latin American farm business is 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 tires in Latin America; and $30 million in prepaid royalties for Goodyear's North American farm business, which it bought along with a Freeport, Ill., factory in 2005.
As part of the deal, Goodyear will maintain complete control of its aircraft tire 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 tire facility, which will make certain small farm tires 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 conclude until the latter part of 2011, according to Taylor.
Total cash outlay from Titan will be about $30 million, which includes about $12 million for the facility, equipment and inventory and about $18 million in prepaid royalties for a licensing agreement that will allow Titan to make and sell Goodyear-brand farm tires 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,” the Titan executive said.
“We believe we can get this business back up into that range.”
To do that Taylor said the firm will push new products and see about producing OTR radial tires, which are popular in Europe.
The deal will include an off-take agreement allowing Goodyear to produce tires for Titan in Poland, Turkey and South Africa, and an additional agreement allowing Goodyear's Asian business to buy farm tires from Titan if needed.
Goodyear will continue to make and sell farm tires in Asia-Pacific, where it has capacity in place at plants in India, Indonesia and Malaysia.
Finalizing the deal in France still depends on Goodyear's completing a social plan related to the previously announced discontinuation of consumer tire production at the Amiens plant and required consul- tation with the factory's local works council.
Taylor said that plan calls for capping the facility's work force 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,” the executive said.
“France is getting a little on the hard side. (Good-year) is going to get their social plan and they're going to pay these people a lot of money to leave,” according to Taylor.
He 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.