Michelin prepares to acquire companies with a focus on Asia

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Michelin Cie., the manufacturer of tires of 16 billion euros ($ 18 billion), has the lowest debt level in at least 15 years, and its leverage ratio by its lowest value in a decade, according to data compiled by Bloomberg. This positions the French manufacturer to carry out acquisitions.
The CEO Jean-Dominique Senard said he would be open to the possibility, particularly in Asia. Producers of lower-quality tires would be logical targets, according to Société Générale. "The margin for making an acquisition is quite good," said Alexis Albert, an analyst of MainFirst Bank AG in Paris, in an interview by phone. "Everyone is looking to Asia".
It is projected that Michelin inform the second consecutive annual drop of its revenue because an input stream of Chinese products cheaper in the u.s. and the European preference in financial grips for economic options have eroded sales.
Buy a brand able to compete with lower prices would help the company to capture a greater market share without sacrificing their premium image, said Kevin Tynan of Bloomberg Intelligence. The JK Tyre Industries Ltd., an Indian company of $ 445 million, is a possible target that would fit in the plans, according to the Edelweiss Broking Ltd. Alternatively PT Gajah Tunggal, the largest manufacturer of tires in Indonesia, company in which Michelin already has a stake, said PT Danareksa Sekuritas.
Representatives of Michelin, with headquarters in Clermont-Ferrand, France, did not return requests for comment.
Less debt
Michelin was about 2.2 billion euros in debts at the end of June, the latest month with data available, compared to more than 4 billion euros at the end of 2010.
The ratio of net debt and profits before interest, taxes, depreciation and amortization of the company is about 0.4 times – far below the industry average of 1.1 times.
The company has had trouble in the u.s. because dealers and distributors bought many cheaper Chinese tires to forestall anticipated fees, said Tynan of Bloomberg Intelligence.
The Commerce Department set preliminary rates last month to Chinese tires that according the Department had been sold at unfairly cheap prices in the u.s. market.
The situation left the manufacturers of premium tires like Michelin with a dilemma — start selling goods cheaper to recover market share or remain steady with prices and risk to cede volume? The rates should help balance the market, but still there will be demand for lower-cost options in the u.s. and Europe. An acquisition could help, said Tynan.
Candidates
The JK Tyre has the largest marketshare of tyres for commercial vehicles in India, where demand is growing rapidly, said Debashish Mazumdar, an analyst at Edelweiss Broking, in a telephone interview. Indian tyre manufacturers produce entry-level brands, in part by spending less on research and development than their European counterparts, he said.
Another option for Michelin is to acquire the Gajah Tunggal, or at least increase its stake in the company Indonesia, said Joko Sogie, an analyst at Danareksa Sekuritas in Jakarta, in a telephone interview.
Michelin currently has 10 percent of the Gajah Tunggal, whose market value in Jakarta is about $ 400 million.
Make an acquisition to penetrate the tire market of lesser quality may not work for Michelin, said Edoardo Spina, analysts at Exane BNP Paribas analyst.
Cheapest tires do not offer the same margins and returns to its namesake brand, and even after the u.s. rates to take effect, the company could find it difficult to compete with Chinese manufacturers of tires with lower production costs and labor, he said.
Still, the rush to get cheaper options in the u.s. and Europe shows "that a tire is a commodity, so the price determines who will sell," said Spina. "I guess it's ' If you can't beat the enemy, join him '. This would be the logical "for an acquisition.
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