Amtel-Vredestein N.V. reports that, since the October 1 termination of the proposed joint venture with Sibur Holding, operations at its Russian production facilities in Kiron and Voronezh have remained suspended due to the group’s shortage of working capital. This suspension, the company adds, does not affect production at Vredestein Banden BV, where production is said to be at normal levels.
After days of speculation that Michelin may be interested in bidding for Continental AG’s rubber division, the Financial Times has suggested that Bridgestone of Japan “is likely to be a willing buyer.” The Michelin rumours began after the French tyre manufacturer’s managing partner, Michel Rollier, gave interviews to various publications indicating that the company would be interested in bidding for Conti despite the likely cartel implications. The reasons for Bridgestone’s name being linked with a potential Continental rubber acquisition, on the other hand, are to more to do with the company’s lack of comment combined with the free fall of financial markets.
According to the Financial Times, hedge funds associated with Schaeffler’s takeover of Continental are “becoming increasingly nervous about the potential 12 billion (£9.4 billion) deal closing.” The problem is that the recent almost unprecedented falls in stock prices in markets across Europe and the world have affected the deal’s value. When Schaeffler offered 75 euro per Conti share in the summer, it received an unexpectedly high take up. However, on Friday 3 October the Conti shares were trading at 66 euros.
The Amtel-Vredestein Sibur-Russian Tyres deal has now officially been called off, according to a company filing to the London Stock Exchange published on 30 September. The plan had been to merge the two companies in order to make a $2 billion a year tyre firm with over 30 per cent domestic market share and access to high performance technology and European markets through Vredestein.
Amtel-Vredestein’s confirmation that the deal is off followed news reports that the deal was faltering due to a lack of the credit necessary to fulfil the deal’s financial terms and conditions. However, the statement also struck an optimistic note: “The company is actively considering a number of options and it is expected that a further announcement will be made in due course.” Yesterday Amtel-Vredestein’s press department in Russia told Tyres & Accessories that the company had not walked away from the deal. “It is an ongoing work in progress,” they explained.
The proposed merger of Russian tyre manufacturing giants Amtel-Vredestein and Sibur Russian Tyres looks to be faltering after reports from news agencies Interfax and Reuters suggested Sibur had walked away from the deal. The plan had been to merge the two companies in order to make a $2 billion a year tyre firm with 30 per cent domestic market share and access to the European markets through Vredestein.
Reuters quoted an unnamed source as saying: “As far as I understand Sibur decided not to move forward with the initial agreement.” Sibur Russian Tyres representatives could not be reached for commented. However, Amtel-Vredestein’s press department in Russia told Tyres & Accessories that Amtel had not walked away from the deal. “It is an ongoing work in progress,” they explained.
The company to emerge from the deal between Sibur Holding and Amtel-Vredestein could generate sales of more than US$2 billion in 2009, a company executive has said. Sibur Russian Tyres CEO Vadim Gurinov has told the Kommersant business daily that he anticipated the company would post pre- interest, taxation, depreciation and amortisation earnings of $200 million in 2009.
The planned reverse takeover transaction between Amtel-Vredestein and Sibur Holding, which would see the former company purchase all issued and outstanding shares Sibur Russian Tyres before the latter purchases the resultant enlarged company, has been approved during Amtel-Vredestein’s Extraordinary General Meeting of Shareholders.
Specifically, Amtel-Vredestein reports the following approved resolutions:
Amtel-Vredestein is halting production at its Amtel-Povolzhye factory in Kirov, Russia. Upon making the announcement on August 19 the company said the stoppage is the result of a working capital shortage it has experienced in recent months.
A second tranche of the stabilisation loan provided by Sibur Russian Tyres is anticipated by Amtel-Vredestein in accordance with previously made agreements. The provision of such funding is subject to the passing of resolutions at the company’s Extraordinary General Meeting of shareholders, scheduled for 29 August.
Despite net sales rising 29.4 per cent to $994 million in the full 2007 year to December 1, Amtel-Vredestein has recorded a pretax loss of $222 million for the year. The company states that its strong sales were boosted by its core passenger car tyre business, as well as good trading in other tyre segments. Sales from the company’s Russian operations grew 30 per cent to $439 million, while sales from European operations via the Company’s Vredestein Banden subsidiary rose 18 per cent to $402 million.
Last year’s Winter Tyre Review (T&A, September 2007) featured three Vredestein tyres designed to withstand cold weather. The Wintrac Xtreme and its SUV cousin, the Wintrac 4 Xtreme courted the difficult market of the safety and style-conscious, being winter tyres designed in aesthetic partnership with Giugiaro Design – the Italian design engineering firm. The Quatrac 3, on the other hand, had designs on those wishing for the safety features of a cold tyre, but didn’t want the hassle of changing tyres come the chilly season.
This year’s launch is a different animal: leaving aside the convenience and aesthetic concerns of other ranges, the Arctrac is for the committed winter tyre user in truly hostile conditions; a studded tyre with sturdy angular shoulders, whose natural territory is upon the very heavy frosts of countries surrounding the Arctic Circle, such as Canada, Russia and the Scandinavian nations.
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During May’s Essen show, plenty of rumours about Sibur Russian Tyres was bidding for Amtel-Vredestein were circulating. The difficult part was trying to pin someone down to go on the record and confirm what we all thought we knew at the time. Sibur Russian Tyres’ export department head, Oleg A Kataev, for example was tight-lipped when asked about the Amtel-Vredestein/Sibur negotiations. Instead, he was much more interested in explaining how Sibur’s European service has improved since the company opened a new office in Germany.
At the moment this means increasing supply into Germany and the neighbouring markets, particular with regard to Sibur Russian Tyre’s Tyrex truck brand. This direct, concerted sales effort remains a relatively new venture for the Russian company that has (since the deal with Amtel-Vredestein was completed – see elsewhere in this issue for further details) grown from a very strong to totally dominant position in the its domestic Russian market.
Dutch manufacturer Vredestein utilised the opportunity of Reifen 2008 to exhibit their newest addition to Vredestein winter range, the Snowtrac 3. The tyre is the company’s follow-up to their highly-rated, award winning bestseller – the Snowtrac 2 – and uses a different tread compound to its predecessor that the company says will provide greater levels of grip in winter conditions. Additionally, the company officially launched its new studded winter tyre: the Arctrac, which Vredestein claims will “come into its own in heavy frost.” The company also announced the rebranding of its Swiss Vredestein Group member, Maloya, a move that aims to appeal to “a young, modern and dynamic target group.”
What may appear to some a complicated transaction is actually very simple: The unlisted holding company Sibur Holding, having sold its Sibur Russian Tyre business to the stock-exchange listed Amtel-Vredestein and then acquired the majority of all outstanding Amtel-Vredestein shares, has been able to obtain a tyre business that remains registered with the London Stock Exchange.
Amtel-Vredestein has reached an agreement with Sibur Holding that will see it acquire Sibur Russian Tyres in exchange for 159.3 million new Amtel-Vredestein shares. Amtel-Vredestein will also carry out a $150 million share placement, and Sibur Holding has already agreed to acquire $50 million worth of these shares. As a result, Sibur Holding will own 70 per cent of the new expanded tyre operation. This deal, which values Sibur Russian Tyres at approximately US$318.6 million, promises to create “one of the leading diversified tyre producers in Europe and one of the top 10 tyre producers worldwide,” states Amtel-Vredestein.
The acquisition will give Amtel-Vredestein access to a $40 million line of funding from Sibur Russian Tyres. Media reports earlier in the year suggest Amtel needs roughly $20 million a month to keep raw materials flowing into the production process during the transition. As a result, the deal is expected to be completed in the second half of 2008.
Following the initial acquisition of Sibur Russian Tyres, the terms of the agreement call for Amtel-Vredestein to conduct a $150 million private share placement at a subscription price of not less than $1.89 per share. Sibur Holding has already agreed to purchase shares to the value of $50 million. Following a successful completion of this share issue, Sibur Holding will own 70 per cent of the new, larger tyre company and no less than 60.5 per cent of Amtel-Vredestein’s enlarged share capital as a result of the acquisition and placement. Sibur Russian Tyres chief executive Vadim Gurinov will head Amtel-Vredestein following the transaction.
Furthermore, Sibur Russian Tyres has agreed to provide Amtel-Vredestein with an interim funding facility of $40 million, subject to the agreement of the second company’s shareholders. The interim funding will be provided in two tranches; $20 million will be immediately available to Amtel-Vredestein upon signing a definitive agreement, and the balance available upon Amtel-Vredestein’s shareholders passing the required resolutions at the EGM. The amount raised through the interim funding is intended to enable Amtel-Vredestein to meet its liquidity requirements until completion of the acquisition and placement.
Amtel-Vredestein notes soberly that, in light of its difficult financial position, the transactions with Sibur Holding are “considered essential to the continued viability of Amtel-Vredestein as a going concern and, without the transactions, Amtel-Vredestein’s debt restructuring cannot succeed.”
“This is a significant achievement for Amtel-Vredestein and Sibur Russian Tyres and for their shareholders as well as all stakeholders,” commented Petr Zolotarev, CEO and chairman of the Amtel-Vredestein Executive Board. “The combination of the two businesses as well as the placement will provide the enlarged group with a stronger balance sheet and essential funding to continue operating as one of the leading global tyre manufacturers, creating at the same time one of the leading companies in the Russian market. Going forward, the enlarged group will benefit from greater economies of scale, enabling it to compete more efficiently. ”
Alexander Dyukov, chairman of the Boards of Sibur Holding and Sibur Russian Tyres, commented that “The transaction will create one of the top 10 tyre producers worldwide, and is in line with Sibur Holding’s strategy to increase the value of its tyre business.” Sibur Russian Tyres CEO Vadim Gurinov added “the Russian tyre market has a very high growth rate and the enlarged group will be very well positioned to benefit from the growth, finding itself in a win-win situation. In addition to leading positions in the truck and off-the-road tyre segments, the group gains the same positions in the passenger and light trucks tyre segments and becomes an undisputable market leader in Russia and the largest tyre manufacturer in Eastern Europe. Moreover, by this combination, we are able to reach additional synergies through acquiring an up-to-date research base, high-quality tyre brands and a wide European distribution network. From my point of view, this business combination provides us with great prospects and development opportunities.”
Russia’s economy is growing strongly, comments Amtel-Vredestein, adding that the enlarged group will be better positioned to benefit from this and compete effectively with foreign competitors. Furthermore, it states, “the parties are confident there is significant scope for realising synergies by combining the operations of the two companies in areas of manufacturing, research and development, administrative cost savings and a rationalisation of the capital investment programme.”
Amtel-Vredestein has alerted consumers that counterfeit Amtel tyres have been found at retail stores in some markets. The tyremaker believes that the use of these tyres may be dangerous. “Fake tyres are made of cheap rubber mix and low quality synthetic rubber,” commented Anatoly Volnov, head of Research and Quality control department at Amtel-Vredestein. “Threads of such tyres are very weak and not elastic enough, they also wear out rapidly. These fakes may lead to car accidents.”
The company reports that this year cheap imitations of certain Amtel branded light truck tyres have been discovered, notably imitations of the Amtel 185/75 R16 – Cargo AS K-156 and Kobra K-156. The counterfeit tyres combined the names of both models and appeared in the market as the Kobra Cargo КА-156.
Russian media has reported that Amtel-Vredestein shareholders will receive no 2007 dividend from the Amtel Chernozemye tyre factory in Voronezh, Russia, following a decision made at the facility’s annual meeting on June 9. The 2007 profit will instead be retained.
A second tyre making facility at the site – Voronezh-2 – is scheduled to enter series production in the near future, and will have a capacity of 2.5 million tyres per annum. The Voronezh-2 plant will bring the number of facilities operated by the company to four; factories also operate in Kirov (Amtel Povolzhye) and the Enschede, the Netherlands (Vredestein).
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