FINDLAY, Ohio—Now that Cooper Tire & Rubber Co. has sold its 65 percent ownership in Cooper Chengshan Tire Co. Ltd., the firm said finding alternative sources of truck and bus radial tires is one of its top priorities.
Cooper sold its share to its former joint venture partner, Chengshan Group Co. Ltd., for about $262 million. Cooper listed the value of CCT—determined by an independent firm—at about $437.7 million in its third quarter 10-Q filing.
The CCT joint venture was Cooper's only source of TBR tires, and while off-take agreements with Chengshan are in place until mid-2018, the firm is exploring its options aggressively to fill the capacity, Cooper officials said during a Dec. 4 conference call.
Roy Armes—chairman, CEO and president of Cooper—said options could come in a variety of forms, including an agreement with another supplier, a joint venture, an acquisition, adding capacity to its other facilities, buying a facility and running it, or building a new plant.
“We've been working on this now for several months actually, while we were in parallel with negotiating the agreement in the ownership structure change with CCT. So we've already got a head start on this thing. Ideally in 2015 we ought to have some idea of what direction that we're going, and we can communicate that strategic direction when we get there,” Armes said.
“That's what I would like to do. Obviously there are a lot of factors and considerations in that,” he said. “But we have a high sense of urgency in moving forward with an alternative plan.”
Armes said one of his expectations is for Cooper to lay out a definitive direction for sourcing alternative TBR production sometime in 2015.
“We don't want this thing hanging around forever,” Armes said. “At the same time, we do want to move along at a pace where we can fully understand our risk and evaluate the right approach given what we've gone through.”
Part of that plan might include establishing a plant outside of China in light of the recent decision by the U.S. Department of Commerce to levy countervailing duties on tires imported from China. Cooper was assessed a 12.5 percent duty on its passenger and light truck tires produced at its wholly owned Cooper Kunshan Tire Co. Ltd. facility in Kunshan, China.
While the countervailing duties currently do not affect TBR tires imported from China, Armes said Cooper would consider the potential for future duties being imposed when moving forward with its decision to source new TBR capacity.
“We're not taking any options off the table at this point in time because I think that is a consideration we have to think about,” he said of the recently imposed duties. “If something happens down the road, are we going to be protected in one way or another?”
Armes also shot down any possible rumor that the sale of CCT would re-open merger talks with Apollo Tyres Ltd.
“I don't think we can comment on any kind of speculation, or rumors or anything else that might be out there,” Armes said. “We're focusing on what we have to do in our strategy to grow our business in China. We've always said before if there is something that makes sense from a shareholder standpoint or creates shareholder value it's something that the board has a responsibility to look at. Right now (Apollo) has not been any part of our focus.”