By LOU WILIN
Wanting to boost its stock price and show confidence it has enough cash to chart a new future in China, Cooper Tire & Rubber Co. on Thursday announced it will repurchase $200 million of its stock.
“Our balance sheet remains strong and we have ample liquidity,” said Brad Hughes, chief financial officer and president of international operations. “The company intends to fund the (stock purchases) initially with cash on hand and their existing credit facilities.”
Under an agreement with J.P. Morgan Chase Bank, Cooper will receive about 80 percent of the number of shares to be repurchased at the start of the repurchasing program, or about 5.6 million shares, based on the closing price Wednesday.
The total number of common shares to be repurchased will be determined on final settlement.
The repurchase program is scheduled to run until February. As of July 31, Cooper had about 63.6 million outstanding common shares.
The stock repurchase will likely increase shareholder value by decreasing the number of outstanding shares that divide the company’s market value.
“The accelerated share repurchase demonstrates our commitment to continuing to deliver value to shareholders,” said Roy Armes, chief executive officer of Cooper Tire. “Our board also declared Cooper’s 170th consecutive dividend (Wednesday), and we intend to continue to invest in important growth opportunities to provide increased shareholder value over the long term.”
Cooper is spending cash even though it may very well need much cash in the coming months for its operations in China. Since strife last year between Cooper and Chengshan Group, the two partners have agreed that one of the companies will buy the other’s interest in their large factory, or they will keep the current structure in which Cooper owns 65 percent.
Cooper Tire’s partnership with Chengshan Group went awry last year when the Cooper Chengshan Tire factory and its unionized workers sabotaged the proposed sale of Cooper Tire to Apollo Tyres of India. The Chinese plant stopped producing Cooper-brand tires and withheld the plant’s financial information from Cooper Tire leaders.
Without the financial information, Cooper Tire could not release information about its performance in the third quarter of 2013. That prevented lenders from releasing financing that Apollo needed to buy Cooper.
Since the Apollo deal unraveled, the Cooper Chengshan plant has resumed production of Cooper tires and is releasing financial results.
Whatever Cooper Tire ends up doing, it has much at stake in China, the world’s fastest-growing tire market.
One way or another, Cooper will keep earning profits in China, Armes has said.
If Cooper sells its interest in Cooper Chengshan Tire, it will gain a war chest of at least $283 million to invest elsewhere, said Keith Moore, managing director and event-driven strategist for MKM Partners, Stamford, Connecticut.
An independent valuation firm may decide Cooper’s interest in the plant is worth even more, and Cooper would receive more.
Cooper would have “added flexibility to enter into acquisitions, new offtake relationships, or possible greenfield development of additional production capacity anywhere around the world to support the expansion of our business,” Armes said.
The Chinese plant will have to keep making Cooper-brand products for at least three years, too, Cooper said.
If Cooper buys Chengshan’s minority interest, worth at least $152 million, “We will have the certainty of a wholly-owned asset with an experienced team in place that will continue our China growth strategy,” Armes said.
Either way, Cooper will keep employing sales, marketing and technology forces in China, and retain its other Chinese factory, Cooper Kunshan Tire Co. outside Shanghai, he said. Cooper is the sole owner of that one.
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