QINGDAO, China—Cooper Tire & Rubber Co. has secured an alternative source of truck-bus radial tires, agreeing to purchase a 65 percent stake in China's Qingdao Ge Rui Da Rubber Co. Ltd. (GRT) for about $93 million.
The deal is pending customary regulatory approvals and is expected to close in the first half of 2016. Once complete, Cooper will rename the operation Cooper Qingdao Tire Co. Ltd. and source its Roadmaster radial truck and bus tires from its 1 million-sq.-ft. facility in Qingdao. The plant employs about 600 and has the capacity for 2.5 million to 3 million TBR tires annually.
Cooper did not disclose the facility's current capacity but said that it is producing several hundred thousand TBR tires now. The firm added that the facility could support an additional 2.5 million to 3 million passenger car tires annually under its current floor space if needed, with plenty of surrounding land to expand the facility should demand dictate.
The company already produces PSR tires in China at its Cooper (Kunshan) Tire Co. Ltd. subsidiary in Kunshan.
“This joint venture represents a great strategic fit within our existing and highly productive worldwide manufacturing network, allowing us to further optimize Cooper's global footprint and support growth in our regions,” said Roy Armes, Cooper's chairman, CEO and president.
The move gives Cooper an alternative source of TBR tires, at least until mid-2018. At that time, its off-take agreement with Prinx Chengshan (Shandong) Tire Co.—formerly Cooper's joint venture with Chengshan Group Co. Ltd.—will expire. However Armes said the firm could extend its agreement with PCT beyond its expiration date.
“We're going to honor our agreement with PCT, and we feel that we can do that while at the same time diverting some volume and business to GRT as we begin to ramp up,” Armes said. “PCT's done a very good job for us, and we don't have any complaints. This alternative source gives us the opportunity to mitigate any risks we may have there at this point in time. We don't see anything changing there.”
The executive stressed that while this move is not necessarily designed to replace the PCT volume, GRT has the capability of replacing it should Cooper opt to do so.
“We're not doing it just to replace everything at PCT,” Armes said. “What we are doing is giving ourselves an alternative source so we don't have all of our eggs in one basket. The size of GRT certainly would indicate that they could handle all of that volume from PCT. But there may be a rationale as to why we'd want to continue on with PCT when our agreement expires. I'm not sure what that would be at this time. They have been a very good supplier since we've sold our 65 percent. We don't have a reason to jump up and run away from them at this point in time.”