How much might Sumitomo Rubber Industries pay for Dunlop?

During an earnings call with investors in mid-February, Sumitomo Rubber Industries (SRI) did the closest thing possible to throwing its hat into the ring when it comes to buying Dunlop tyre brand rights when SRI executives acknowledged their interest in buying Dunlop in Europe and North America. Those rights currently belong to The Goodyear Tire & Rubber Company, which recently announced its intention to position Dunlop as a “strategic player within the high-end value segment of the market” to prevent direct competition against its main Goodyear brand within the premium segment.

Before that, Goodyear – which has been facing significant financial headwinds for the last couple of years – said it was strategically reviewing three assets (including the Dunlop rights) and “targeting value-accretive gross proceeds in excess of US$2 billion”. Around the same time, Goodyear put out a “portfolio optimization” slide, which highlighted that the combined turnovers of those three assets – Goodyear’s Chemical business, the Dunlop brand and Goodyear’s off-the-road tyre business – also amounted to in excess of $2 billion, $2.4 billion to be precise.

Replying to questions from a securities analyst at the time of stating SRI’s interest in Dunlop, SRI’s Satoru Yamamoto confirmed that Goodyear has been “talking about releasing the Dunlop brand.” The president and chief executive officer added that, yes, SRI is “interested in the premium Dunlop brand in Europe and the Americas, which is owned by Goodyear.” But how much would a suitor like SRI pay for Dunlop?

One approach is to estimate what Goodyear is asking for. Goodyear’s decision to state that it is looking to generate “in excess of $2 billion” at the same time as highlighting that the Goodyear Chemical business, the Dunlop brand and Goodyear OTR generate combined turnover of around $2.4 billion, looks a lot like an indication that Goodyear wants roughly one year’s turnover. That wouldn’t be unusual as business valuations are often multiples of pre-tax profit or something around the turnover figure. In this case, Goodyear says Dunlop generates around $700 million a year in turnover, so one estimated price tag could be somewhere in the region of that figure.

Another way to look at it is to ask how much Goodyear has paid SRI in relation to Dunlop. In 2015, Goodyear paid SRI around $326 million to end the two companies’ joint venture(s). Asked why, SRI said the North American and European JVs didn’t perform as initially expected. Goodyear said the split was a result of “anti-competitive behaviour”. Either way, Goodyear paid a headline figure of $271 million plus roughly $55 million in pre-existing debt, totalling something like $326 million. A $326 million offer to now buy the rights to make Dunlop tyres might look like a lowball figure, but effectively regaining the rights to the Dunlop brand with the money Goodyear paid you would be an attractive move for any shrewd business person. And it has to be said, the circumstances dictate that it is a buyer’s market right now.

Another approach is to evaluate an existing third-party valuation. While not strictly a valuation for acquisition purchases, the popular Brand Finance ranking valued Dunlop at $2 billion in 2023. A first glance that looks like the highball offer in our survey. However, the same research valued the Goodyear brand at $2.2 billion. But that’s comparing apples and oranges because Goodyear is a global brand and Dunlop’s ownership is a) somewhat fragmented with different owners in different markets and b) the largest owner of Dunlop tyre brand rights is already SRI. And therefore, one would want to subtract the proportion of rights SRI already owns from such a figure to establish a price for what Goodyear is selling.

The post-2015 division of Dunlop tyre rights suggests that SRI already owns Dunlop in North American motorcycle tyre OE and replacement as well as Japanese OE in North America, plus both OE and replacement in Japan (as you would expect) and 33 other countries where the two companies previously held joint trademark rights. And that means Goodyear is really “only” selling the Dunlop tyre brand rights in non-Japanese OE in North America, North American replacement tyres plus OE and replacement in Europe. Since Dunlop market share in those market is not massive and the recent Goodyear group brand realignment is designed to promote the Goodyear brand over Dunlop in the group stable rather than the dual-premium philosophy of the past, that picture isn’t going to get any better. In other words, Goodyear’s main selling point is the potential of the Dunlop brand to SRI rather than its actual market position on the basis that it is worth more to SRI than it is to Goodyear – rather like selling the last remaining property in a monopoly-board set.

So how much is Dunlop worth? Put these three perspectives together and there is some consensus around the $700 million to $1 billion mark. However, the actual price that ends up being paid depends on two things and two things only: how keen Goodyear is to sell and how much the buyer – whether it ends up being SRI as is most likely, or not – is willing to pay.