Cooper Tire prepares valuation of Chinese JV

FINDLAY, Ohio—Cooper Tire & Rubber Co. said during its quarterly investor conference call Aug. 8 that a valuation of its Chinese joint venture in Chengshan should be established by Aug. 11.

The firm has been working on a valuation with Chengshan Shandong Tire after it ceased making Cooper-brand products last July at its plant in Chengshan, China in protest of Cooper's attempted merger with Apollo Tyres Ltd.

Roy Armes, Cooper's chairman, CEO and president, said the firm intends to disclose the valuation of the joint venture, named Cooper Chengshan (Shandong) Tire Co. Ltd.

“We continue to work through that process and regardless of the ownership outcome, China will continue to be an important part of Cooper's long-term growth strategy,” Armes said.

Cooper reached an agreement with its joint venture partner at the end of January regarding the process of determining the long-term owner of CCT. It said once a valuation is established, Chengshan will have 45 days to either purchase Cooper's 65-percent stake in the company or sell its own 35-percent interest to Cooper. Should Chengshan decide not to exercise either option, Cooper has the right under the agreement to purchase Chengshan's share.

Although CCT halted production in the last half of 2013 and the beginning of 2014, CCT has now returned to normal production levels. This includes resuming the production of Roadmaster tires earlier this year and production of all brands is ongoing with the plant now nearly at full production levels. Armes said customers have responded well to Cooper's Roadmaster tires.

“We are regaining our position with 90 percent of our top 30 customers and expect to continue to make progress in the second half,” said Brad Hughes, president of international operations.

Armes said although Cooper does not yet know the resolution of the CCT ownership, it does have the “financial wherewithal to meet all of our obligations, support our growth strategy, including investment in our growth in China through CCT or otherwise along with the accelerated share repurchase to ensure a bright future for Cooper.”

Cooper also is working on a Supply Chain relationship with its joint venture in Mexico and South America. For the first time the company shipped product into South America from its Mexico joint venture.

The International Trade Commission has made a decision on the antidumping and countervailing duty investigation against certain passenger and light truck imports and the case is currently at the Department of Commerce for further investigation and determination.

Although the outcome is unknown, Armes said tariffs have been disruptive to a normal market in the past and if they are imposed again they're likely to be disruptive again.

“Tariffs are felt in the marketplace where they are being applied, but they also often affect other markets,” Armes said during the conference call. “We continue to support free and fair trade in a globally competitive market.”

Cooper will continue to monitor this and adjust as necessary. Armes said Cooper has been moving and shifting its mix to a higher end product and is about 25-30 percent less exposed to these kinds of tariffs than it was in the past.

But Armes said Cooper still will have to adjust as needed despite the movement away from lower-end products. He said the last time the tariffs were in place, other imports were still coming in.

Cooper has entered into an accelerated share repurchase program with J.P. Morgan Chase Bank N.A.

“This program, along with our dividend, which we have paid for 170 consecutive quarters, demonstrates our ongoing commitment to our shareholders,” Armes said. “We are in a strong financial position and feel it is appropriate to return some of our cash to shareholders.”

Under the ASR agreement, the company will repurchase an aggregate of $200 million of its common stock. Cooper will receive approximately 80 percent of the number of shares to be repurchased at the inception of the ASR program, or approximately 5.6 million shares, based on the closing price on Aug. 6. Cooper said the total number of shares to be repurchased will be determined on final settlement.

“The company intends to fund the ASR initially with cash on hand and through existing credit facilities,” Hughes said.

He said Cooper will continue to look at the capital structure and see if changes need to be made, which could be affected by the outcome of the CCT ownership situation.

The company has a great deal of confidence from a liquidity standpoint and from a business standpoint, Hughes said, so it thought this was the best step forward.

Hughes, who was serving as Cooper's chief financial officer, took on his current role effective July 2. Armes said Hughes will continue to serve as CFO until his successor is found.

Armes said Cooper had a record operating profit for the six-month period, with operating profit rising 2 percent to $133 million. Net sales decreased 2 percent to $1.2 billion.

“We typically see higher volume in profits in the second half of the year after building inventory in the first half of the year, so we're very pleased that the second quarter was strong,” Hughes said.