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November 09, 2015 01:00 AM

Trelleborg to buy Mitas

Bruce Davis
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    TRELLEBORG, Sweden—Trelleborg A.B. is offering to buy CGS Holding a.s., parent of Czech agricultural and industrial tire maker Mitas a.s., for about $1.25 billion.

    The proposed acquisition, subject to approvals from relevant authorities and expected to be completed in the first half of 2016, will nearly double the annual revenue of Trelleborg Wheel Systems and enhance Trelleborg's position in several other polymer-related business areas, Trelleborg said.

    With manufacturing capacities in Central and Eastern Europe, the U.S. and Mexico, CGS “highly complements” Trelleborg's manufacturing footprint and capabilities and is expected to “generate significant synergies and cross-selling opportunities,” according to Peter Nilsson, Trelleborg president and CEO.

    “The plan is to gradually integrate the acquired entities into Trelleborg's existing business areas,” Nilsson said. “We regard the purchase price as attractive given the synergy potential and expected recovery for the agricultural market.”

    Nilsson called the deal for CGS a “highly complementary acquisition” and described the Czech company as having “strong and favorably performing operations in agricultural and industrial tires as well as engineered polymer solutions.”

    Trelleborg said adding CGS's Mitas business will establish it as a global leader in agricultural tires and reinforce its leading position in industrial tires. The firms' combined tire and wheel revenue will exceed $1 billion, making it a top 30 global tire maker and perhaps the largest ag tire producer.

    Besides doubling tire revenue, the addition of Mitas will broaden Trelleborg's geographical reach and add sales in complementary tire niches.

    Mitas operates tire plants in Czech Republic, Serbia and the U.S., the latter of which opened in 2012 in Charles City, Iowa. Trelleborg has tire plants in Italy, Sri Lanka and China and is in the process of opening a farm tire plant in Spartanburg, S.C.

    Mitas is performing strongly despite the current downturn in the agricultural market, Trelleborg said.

    Prague-based CGS generated sales of about $680 million a pre-tax operating margin of 16 percent in the 12 months ended June 30, 2015, Trelleborg said.

    Trelleborg said CGS's other industrial polymer businesses—which operate under the Rubena trade name—will enhance its market positions in coated systems, sealing solutions and industrial solutions.

    Trelleborg said it expects to see cost synergies of about $35 million a year over the coming three years.

    The acquisition will be financed through committed bank facilities. Trelleborg's leverage initially will be slightly above three times the net debt/EBITDA ratio on a pro-forma basis.

    This is higher than Trelleborg's long-term ambition and the intention is to return to a leverage ratio similar to the levels prior to the acquisition over the next 12 to 18 months, the Swedish company said.

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