Michelin, Sumitomo Corporation to pool tyre wholesale resources in USA & Mexico

With the creation of a 50-50 joint venture, Michelin North America Inc. says it and Sumitomo Corporation of Americas will form the second-largest player in the United States’ wholesale tyre market. The two companies have entered into a definitive agreement to combine their respective North American replacement tyre distribution and related service operations. The transaction is subject to customary approvals.

The combined wholesale unit will operate under a new brand, NTW, and will be an operating company of Sumitomo Corporation of Americas’ subsidiary, replacement tyre distributor TBC Corporation. Michelin expects this new company will provide better availability of tyre products at all price points across North America, achieving greater scale in wholesale delivery for customers. The joint venture also will enable the two companies to enhance service quality, capacity and speed for customers.

The partnership will bring together Michelin North America-owned tyre distributor Tire Centers Inc. (TCi), with more than 85 locations across the country the fourth largest wholesale tyre and service network in the United States, and TBC Corporation, which has 59 wholesale distribution centres and more than 2,400 North American retail locations, making it one of the nation’s largest vertically integrated marketers of tyres for the automotive replacement market.

“This partnership with Sumitomo Corporation of Americas will better position us to serve our retail customers and ensure that consumers have access to our products when and where they need them,” said Scott Clark, chairman and president of Michelin North America. “With this partnership, we can offer an expanded geographic footprint, a broader breadth and depth of product choices and better availability and increased delivery frequency. It will also allow us to provide better and faster service to our direct customers through an enhanced delivery service programme.”

“This joint venture further supports our mobility strategy in this new, dynamic era in the automotive landscape,” said Sam Kato, senior vice-president and general manager of the Auto and Aerospace Group at Sumitomo Corporation of Americas. “In addition to the competitive edge this joint venture provides in the distribution arena, we believe Michelin’s successful experiences in mobility services will add value to TBC. Sumitomo Corporation of America will continue to pursue investments which support our goal of integrated mobility solutions, such as this.”

Reporting the planned joint venture, Michelin North America says strategic benefits of the transaction are expected to include:

• The joint venture will be a more competitive player in the growing North American tyre wholesale and auto services sector, enabling growth in critical North American markets. The joint venture includes TBC’s Mexican wholesale business, TBC de Mexico, one of the largest wholesale distributors in a growing market.

• The deal will allow both companies to more effectively satisfy the needs of online consumers by combining distribution, reach and speed.

• The joint venture will also provide a foundation for coast-to-coast coverage of car and light truck service providers, addressing trends of growth in fleet maintenance and increasing complexity of service requirements and tyre sizes.

• The transaction will increase the companies’ market share and operational scale, positioning the joint venture for faster growth.

The joint venture will be managed under the direction of a six-member Board of Directors. Upon the transaction’s closure, Michelin North America and Sumitomo Corporation of Americas will each appoint three members of the Board.

Erik R. Olsen will lead the organisation as chief executive officer. Prior to the joint venture, Erik R. Olsen was president and chief executive officer of TBC. TBC will continue to be headquartered in Palm Beach Gardens, Florida. Don Byrd will lead the newly formed NTW wholesale business as president and chief operating officer. Prior to his appointment, he was chief operating officer of TCi.

Through the joint venture, two profitable companies – TCi Wholesale and TBC – will be combined. Based upon the enterprise value of each business (US$160 million for TCi Wholesale and $1,520 million for TBC), Michelin will contribute a cash payment of $630 million to Sumitomo Corporation of Americas and TCi Wholesale to equalise ownership in the joint venture.

While Sumitomo Corporation of Americas’ parent company, Sumitomo Corporation, cooperates with similarly-named tyre maker Sumitomo Rubber Industries in tyre wholesale businesses in Thailand, Russia and Australia, the two companies do not belong to the same group.