Michelin sees complementary business in Fenner

CLERMONT-FERRAND, France—Michelin will complement its product offerings to customers in the mining industry with its planned acquisition of Fenner P.L.C. for about $1.7 billion.

"This acquisition will provide a comprehensive offering to mining customers, which is absolutely key," said Michelin CEO Jean-Dominique Senard in an analyst and investor conference call. "We understand that by combining Michelin's mining tire and Fenner's conveyor belt product and services, we will be better positioned vis-a-vis our major customers in the world."

The acquisition will allow the group to provide mining industry customers with products ranging from tires to conveyor belts with related services and solutions, and enhance both companies' geographic reach, according to a Michelin release.

The overlap in mining customers provides opportunities for efficiency and growth, said Marc Henry, Michelin chief financial officer.

"Our customers are the same. We do sell our products to the same companies. We know them very well, (Fenner) knows them very well," he said. "What is very interesting is that we both have a product offering and a service offering, and all those offerings will combine very nicely. On some geographies, they might be better exposed, in some of those we might be better exposed."

The companies have some overlap in footprint, but the gaps can offer significant potential, he said.

"For example, we are very strong in South America," Henry said. "Fenner is not so strong in South America, so we definitely see a large opportunity there."

The addition of Fenner's polymer portfolio also helps Michelin with offerings in high-tech materials, breaking into the reinforced polymer markets, notably in consumer goods, industrial services and medical segments, according to the release.

"The deal will also help to expand engineered material divisions with a very complementary polymer portfolio," Senard said. "Michelin is a strong player in that field, and Fenner is obviously one also. It will help us create a platform to further expand on polymer activities."

Another point where Fenner overlapped with Michelin was a focus on services in its Engineered Conveyor Solutions portfolio, Henry said. Of its returns for the fiscal year ended Aug. 31, services made up 22 percent of the whole, compared to 78 percent in products.

"This is very important, because it matches very well with the Michelin strategy to increase its position into the servicing part of the tire industry in general," he said.

Fenner has picked up positive financial momentum in the past two years, with efficiency plans and gains achieved during a low point in the mining industry, Henry said.

"There were also multiple expansions with diversified industrials and health care markets and, as you know, many trading guidance upgrades in the last two years," Henry said. "This is paving the way for an ambitious strategy in the coming years."

Henry said Michelin has identified opportunities for efficiencies and material cost savings, with about $42.1 million able to be realized immediately, first and foremost in procurement.

The acquisition is a local development of Michelin's growth strategy, driving growth in development of high-technology materials, according to Senard.

"At the same time, we increase significantly our presence in the mining center, which is one of our major legs in our global strategy," he said.

The activities of both companies are "complementary, and we don't expect any significant or even small restructuring charges if the deal is completed," Senard said.

If approved, the acquisition could be completed by the end of the 2018 second quarter.