Bandag Incorporated has reached an agreement to sell its South African business to local management. The new company will be known as Bandag Southern Africa. The deal is due become effective as of 1 December 2004, with a long term licensing agreement expected to follow when transaction is completed.

The multinational retreader points out that the South African operation represents less than 2 per cent of the Bandag’s total assets and contributed approximately $0.6 million to the company’s pre-tax income in 2003. The business will cost its new owners approximately $3.5 million. Payment will include a cash sum of $2 million with the remainder to be paid in equal instalments over five years.

According to the company, the effect that this will have on the earnings of the businesss may fluctuate over the five-year period depending on the stability of the euro and the South African rand. The company says that the expected loss will not affect Bandag’s cash flow, but rather will be an accounting entry which will reduce net earnings.