In order to place a greater focus on its own production of Tier 2-3 tires, Groupe Michelin plans to sell its share in Hankook Tire Co. Ltd.
The tiremaker announced on Nov. 8 its intention to sell its 9.98% stake in Hankook, a move some financial analysts say amounts to “cashing in on a failed partnership.”
According to Michelin, the sale of its Hankook share is part of its portfolio optimization efforts in line with the new growth strategy the company first presented a year ago and reiterated during its October 2011 investor day. At that event, Michelin said it wanted to optimize and strengthen its factories dedicated to producing entry-level and mid-range passenger car and truck tires.
Morgan Stanley, meanwhile, suggested that the Hankook shareholding ended up being a mere financial investment after attempts to cooperate more broadly “repeatedly failed.”
Michelin built its stake in Hankook between 2003 and 2008 and reportedly tried to establish a partnership with Hankook to develop distribution, R&D and manufacturing together in Asia.
Looking at the numbers associated with the deal, the analysts suggest that Michelin could make greater than 300 million euros of pretax profits from the sale, assuming the stock was bought at an average price of 14,600 Korean won and is sold at a 5% discount of its current share price. The total cash inflow could be as much as 450-500 million euros, which Morgan Stanley points out is a significant amount for the company to reinvest into capital expenditure.
The sale of the shares, which are listed on the KOSPI Market of the Korea Exchange, will take place via an institutional private placement by way of an accelerated bookbuilding. The bookbuilding starts immediately and will be managed by Citigroup acting as sole bookrunner; the results of the private placement will be announced after the close of the bookbuilding process. (Tyres & Accessories)
