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Published: Saturday, 9/18/2004

Cooper Tire to sell auto-parts business in $1.17 billion deal

BY JULIE M. McKINNON
BLADE BUSINESS WRITER

Northwest Ohio's fourth-largest company, Cooper Tire & Rubber Co., said yesterday it has a buyer for its auto-parts business, a deal that will slice the Findlay tire maker's revenues nearly in half and bump it off of the prestigious Fortune 500 list.

The sale of the Novi, Mich., unit to the Cypress Group and Goldman Sachs Capital Partners for $1.17 billion, includes two Bowling Green factories with about 1,000 employees. The plants are expected to remain intact.

The deal, forecast to close by year's end, will leave Cooper Tire with only its tire business and in a position to address the demand for several million more tires a year at home and abroad. Most of the company's products are for the replacement market, not for use by automakers.

"They've been very good, and this unit knows how to compete in the business," said Roger Hendriksen, company spokesman. "We just didn't feel that we could adequately invest in and continue to grow both businesses simultaneously."

David Spalding, vice chairman of Cypress, said the buyers intend to expand the business and make it seamless for employees in Bowling Green and elsewhere.

"We're looking to build the business, not to tear the business down," he said.

The unit sold, subject to regulatory and other approvals, is called Cooper-Standard Automotive and brings in about $1.7 billion in annual revenue making seals, hoses, vibration-control systems, and other parts.

The transaction means that Cooper Tire, ranked No. 474 on the latest Fortune 500 list with $3.5 billion in revenue, will slip at least a few hundred places but likely be part of the less-important Fortune 1,000 list.

That will leave northwest Ohio with three Fortune 500 firms, all in Toledo: Dana Corp., Owens-Illinois Inc., and Owens Corning.

With the sale, which Cooper Tire said in March it planned to make, the 90-year-old Findlay firm ends its efforts to become a big player in supplying parts to automakers. That business has become particularly competitive as car companies repeatedly demand price cuts and spread their contracts out among more suppliers.

Investors weren't impressed with the deal. Cooper Tire's stock price rose slightly on the New York Stock Exchange after the morning announcement, then fell 91 cents, before finishing down just 15 cents at $20.85 a share.

Cooper Tire started making moves in 1999 to take a more commanding role in automotive parts with the $584 million acquisition of the former Standard Products Co. and the $245 million purchase of the former Siebe Automotive, a combination that had doubled its overall sales.

Though profitable, the auto parts business needed to grow significantly through acquisitions, and Cooper Tire decided to instead focus on its expanding tire making, said the company spokesman.

Proceeds from the sale, Mr. Hendriksen said, will be used to reduce debt, invest in tire operations, or repurchase its stock. The firm had about $800 million in debt June 30.

The Hancock County company is in the midst of expanding all of its U.S. tire factories, including one in Findlay, and has contracted with a Chinese firm to supply additional tires. It also is building a joint-venture factory in China to supply tires in the United States and Europe, where it already has tire operations, and may pursue other opportunities in Asia, Mr. Hendriksen said.

Cooper Tire has carved out a niche for itself in the U.S. tire industry and is smart to consider selling replacement tires in China, said auto analyst Joseph Phillippi, president of AutoTrends Consulting in Short Hills, N.J.

"We're not talking about the best roads in the world," he said.

Standard & Poor's rating service, however, kept its negative watch warning on Cooper Tire's credit, expressing concern about diminished product diversity. Its ratings were investment grade, however.

Cooper-Standard had an operating profit last year of $96 million, and the management team will be kept, the buyers indicated. The unit has about 15,000 employees, or two thirds of Cooper Tire's work force.

Cypress and Goldman Sachs will equally own the business. Mr. Spalding, of Cypress, said Goldman Sachs was brought in to ensure there would be enough equity to pursue acquisitions and other growth opportunities.

After finding success with Lear Corp., which Cypress previously owned and then had sell public stock, the firm has been looking for a solid auto supplier in which to invest, Mr. Spalding explained.

"We think Cooper-Standard really fits the bill," he said.

The sale is the latest of several private-equity investments in auto-parts businesses. Cypress, a New York buyout firm, in July was named as the buyer for most of the replacement parts business of Toledo's Dana Corp. That deal was for $1.1 billion.

There are no plans to combine the former Dana and Cooper-Standard operations because they serve very different markets, Mr. Spalding said.

Contact Julie M. McKinnon at:

jmckinnon@theblade.com

or 419-724-6087.



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