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ASIAN BUSINESS NEWS

Cooper Tire to Sell Its Stake in China Joint Venture Chengshan Group Will Buy Out Cooper Tire’s 65% Stake

Updated Oct. 8, 2014 11:05 a.m. ET

SHANGHAI— Cooper Tire & Rubber Co. ’s Chinese partner said it would buy out the U.S. company’s majority stake in a local tire factory for $284.5 million, a potential setback to Cooper’s growth ambitions in the world’s largest car market.

A transaction would end Cooper’s ownership of a factory that was sometimes difficult to control, and that contributed to the high-profile collapse of the U.S. company’s own deal to be acquired by India’s Apollo Tyres Ltd.

That $2.5 billion deal was officially called off in December, in part because workers at the factory opposed working for the Indian company, highlighting the growing importance of Chinese and other workers’ impact on major global deals.

The Chinese partner, Chengshan Group Co., said on Wednesday it would exercise its option to acquire

Cooper sees China as part of its effort to increase sales to car makers. Imaginechina/Zuma Press

By C OL U M M U R PH Y

Cooper’s 65% stake in Cooper Chengshan (Shandong) Tire Co., a joint venture known as CCT. State- controlled Chengshan already owns the other 35% of the joint venture, which owns a factory in China’s eastern Shandong province that employs more than 5,000 people and can make 15 million tires—mainly under the Cooper brand—a year.

Cooper said it is reviewing Chengshan’s notice to confirm that all the option agreement’s requirements have been met.

In a statement, Cooper Chief Executive Roy Armes said that in the event of a buyout, CCT is required to keep producing Cooper-brand products until mid-2018.

A Chengshan executive said the company decided to buy out its U.S. partner because of last year’s labor dispute. “There has been no trust between the two parties since the event last summer,” said the executive. “We are unable to continue our cooperation.”

Chengshan said the transaction still requires approval from China’s Ministry of Commerce and other authorities.

Mr. Armes said China is “a core growth market for Cooper,” and that the company would continue investing in a second Chinese factory, wholly owned by Cooper, in the Chinese city of Kunshan.

“China is extremely important,” Mr. Armes had said in an interview last month. “We can succeed with or without CCT.”

Cooper’s Kunshan plant has production capacity of five million tires a year, which the company has said can be expanded to eight million, then doubled to 16 million with a substantial investment. Cooper has said it would most likely need to build out that capacity if demand from the broader market evolves as anticipated.

Workers at the CCT plant went on strike in July 2013 over the Apollo-Cooper deal, citing their concerns about the Indian company’s finances. Factory executives also revoked Cooper’s access to the joint venture’s financial records, though they granted access again after the Apollo takeover was canceled. Cooper has said the CCT strike reduced its unit volume by $226 million in sales last year compared with 2012.

Apollo said the loss of production of Cooper-branded tires and the lack of access to CCT’s financials were impediments to completing the deal.

In filings, Apollo said Chengshan Group Chairman Che Hongzhi orchestrated the labor dispute. A Chengshan Group representative said Mr. Che wasn’t reachable for comment.

Cooper is typically strong in selling replacement tires to car owners, but sees China as part of its broader effort to increase sales to car makers. Part of that effort is beefing up technical and sales capabilities devoted to car makers. For example, earlier this year it launched a new Asia regional technical center in Kunshan, adjacent to its wholly-owned tire factory. The company says the technical center will help it develop tires that better meet local needs.

Cooper executives last month cited a number of challenges, including a fragmented market in China and the company’s late entry. Still, they said China was an important part of its strategy to increase sales to car makers and to capitalize on China’s booming market for sport-utility vehicles. “We’ve done a lot to catch

up,” said Brad Hughes, Cooper’s chief financial officer and international president. “We’re not naive,” Mr. Hughes said. “There are a number of Chinese manufacturers and they are going to get better—and we’re going to get better.”

It will also look to the market for larger tires used on trucks and buses, a market it sees growing as China continues its push for urbanization, especially in the western regions of the country.

The company is also looking at national distribution possibilities such as with gas stations, noting that the tire retail sector in China is highly fragmented.

—Rose Yu contributed to this article.

Write to Colum Murphy at [email protected]

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