Pirelli has become the first firm to successfully negotiate a revised take-over deal after the poorer than expected markets after making its bid for Olivetti. In a complex deal Pirelli will still pay the same share price but will gain a 10% discount on a second tranche of Olivetti shares. The deal is still subject to EU approval.
The US recall of Firestone tyres has claimed its latest victim, as Yoichiro Kaizaki, president and CEO of the Bridgestone corporation in Japan, is to resign. The resignation is regarded by many as an admission of poor handling of the public relations side of the recall. From the beginning, Bridgestone/Firestone has been criticised for its mis-handling of the situation and the president of the American company, Masatoshi Ono, was replaced by John Lampe. The recall problem began last August, but it was not until one month later that Mr. Kaizaki first commented on the situation, promising total support for the Firestone brand and trying to link the Ford Explorer with accidents, denying that the problem was solely down to the tyres. Mr. Kaizaki’s replacement will be Shigeo Watanabe (58) who is a senior managing director at Bridgestone, and who has a strong engineering background. His appointment is expected to be ratified at a shareholders’ meeting on March 29th. Mr. Kaizaki will continue to remain at Bridgestone as a full-time adviser to the board of directors.
Michelin is moving to buy out minority shareholders in Polish tyre manufacturer Stomil Olsztyn with whom it was involved in a dispute. There are no plans to call a public bid for shares. Speculation in local press is that Michelin would like to offer around 29 zlotys per Stomil share – a 20% premium on Wednesdays’ closing price.
The engagement with Telecom Italia has become an expensive adventure for Pirelli. Because telecommunications have fallen from favour on the stock markets the shares are rated even worse than those of automotive companies and analysts do not agree with Pirelli’s change in strategy. Pirelli shares are in a deep fall. This just as the so much abused tyre division presents admissible figures in a very hard market.
Almost all car manufacturers are offering new SUV models. While sales figures for December last year fell dramatically for the “big three”, the European, Japanese and Korean producers were very successful. Analysts are worried because they expect a price war in the till-now-profitable SUV segment, caused by growing over-capacity. Products from Chrysler especially, but also from GM to some extent, are under growing pressure. So far, the big three have cut back production in order to avoid a costly incentive programme. During press conferences in Detroit, high ranking managers were unable to dispel these concerns and thus analysts do not recommend GM and DaimlerChrysler shares as a buy; in fact, quite the contrary.
The UK newspaper Financial Times has published its annual list of the world’s 500 largest companies, ranked by market capitalisation. The only tyre company to appear last year was Bridgestone, at number 300. The company does not make this year’s global top 500. Among Europe’s top 500 are the following tyre companies, with their positions. Michelin (301) Pirelli (242) and Continental (479). Mention should be made too of Sabanci Holdings, the ultimate parent of Lassa/Brisa, which appears at number 331 in Europe.
Kumho Industrial, parent company of, among others, Kumho Tires, is currently overwhelmed with debt, due largely to the performance of is Asiana Airlines subsidiary. The company has formulated a self-rescue plan, which involves raising money through selling shares in the tyre company. Few details are publicly available, but it is believed that two foreign financial institutions (one from Hong Kong, the other from the USA) have taken a shareholding worth US$ 1.2 billion in the tyre manufacturer, which will continue to run with the same management. The plan also involves Kumho selling off one of its three petrochemical plants.
Members of the German buying association of free tyre dealers “EFR” met for their annual meeting at the former Expo exhibition centre. Doors were closed when they reviewed the past year and analysed the weak points, as well as when they tried to set the agenda for the year 2001. No doubt EFR is known on the market as a “Michelin buying association”, which, regarded from the opposite side, is as wrong as if FRI were to be called a “Goodyear buying association”. But this is the wrong place to discuss both sides’ differences. In fact, EFR is representing a group with a very friendly relationship towards Michelin and therefore selling their products as a priority. And of course Michelin itself is doing everything to satisfy the EFR dealers’ demands, as with more than 300 specialised tyre dealers they form a solid distribution basis for their products. After being in low gear for several years, Michelin has had a brilliant start to the new millennium, while profiting from the seeds they have been sowing for the past two or three years. However, until recently, with their first brand the French have steadily been losing market shares all over Europe and most of all in Germany – although no loss of quantity and admittedly from a high ranking – now they are ready for the battle with the competition in their home market Europe, more than ever. As Michelin wants to win the race, Patrice Kéfalas could not miss a favourable opportunity: “Michelin goes Formula One” was the message that he announced in front of the EFR tyre dealers. Hence, the race is on at all levels. With Michelin tyres Patrice Kéfalas does not only want to win for merely for the sake of being the winner, he also wants to realise an image profit, which should end up in either greater quantities or better selling prices too between industry and trade or trade and consumer, or even both.
Analysts regard the price of Conti shares as relatively cheap, at 16.5 Euro. On the other hand, prospects for the group do not look very good; Continental’s Letter to Investors revealed that results in Europe for the first quarter of the year were better than expected. However, the situation for Conti General in the USA is very difficult, with results much worse than forecast and with little prospect of improvement. The plan to sell off the profitable Conti-Tech division will probably have a negative impact on the share price, analysts also believe.
Michelin has gained another 2.88% stake in Stomil-Olsztyn and now holds 65.78% of the company shares. The remainder of the shares are held by eight to ten owners as opposed to the 40 additional shareholders that existed at the beginning of September. This new structure, according to Michelin, clarifies the structure of the company.
As widely expected, the Bridgestone Corporation has reported a massive fall in net profits of 80 per cent for the year 2000. Net profit was 17.7 billion Yen (US$ 155 million), which was better than the company’s prediction late last year of 13 Billion Yen. Turnover was down too, by 3.8 per cent to 2,006.9 billion Yen, and pre tax profits were down nearly 38 per cent, from 200.8 billion Yen last year to 124.8 billion Yen. This is largely attributable to the effects of the Firestone recall. This is the company’s worst result in ten years. Since the announcement of the tyre recall, Bridgestone shares have fallen in value by 50%.
It is hard to keep pace with the price of Bridgestone shares as they yo-yo up and down. Following a fall when the company announced the closure of the Decatur factory, the shares have risen by 0.77 per cent, outperforming the Stock Market. Japanese analysts believe that the factory closure and associated cost savings are a positive step.
After last year’s disaster, Firestone is now making a voluntary recall of 98,000 Firehawk GTA-02 tyres. The size is P205/55 R16 and the tyres were mostly fitted as OE on Nissan Altima sedans in the USA. The problem is an over-wide steel belt which could lead to cracking at the shoulder – the design has since been modified. Both Bridgestone/Firestone and Nissan stress that the move is purely precautionary and that there have been no tread separations, accidents or claims associated with the tyre.
At a press conference, Bridgestone President Shigeo Watanabe revealed that the company was to close its plant at Decatur, Illinois, where 1,500 people are employed. The plant closure will lead to a loss of $210 million, offset to some extent by cost savings of $100 million. Bridgestone will also incur an additional special loss this year, amounting to $549.6 million and the group has revised its worldwide consolidated net profit forecast from 48 billion Yen to 10 billion. For Bridgestone Japan, the company is predicting a net loss of 130 billion Yen for the calendar year 2001, the first loss for the group since it was first listed on the Tokyo Stock Exchange in 1961. Bridgestone’s shares fell nearly 2 per cent on the news, to stand at 1,273 Yen.
Deutsche Bank analysts have upgraded Goodyear shares from “Market Perform” to “Buy”. They are of the opinion that Goodyear has made significant progress in reforming its cost structure and this, coupled with lower raw material prices, will mean much better-than-expected profits. The analysts also believe that Goodyear can capture many Firestone dealers in February next year, when their contracts with Firestone expire.
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