German-based Continental AG agreed to buy Veyance Technologies Inc. from investment company Carlyle Group LP for about $1.9 billion, adding the maker of industrial hoses and conveyor belts to expand beyond the auto business.
Veyance, headquartered in Fairlawn, is the former engineered products unit previously sold off by Goodyear Tire & Rubber Co.
Continental is Europe’s second-largest maker of car parts and also is Europe’s second largest tire maker.
Continental said it expects the purchase of Veyance to boost profit of one of its business units called ContiTech immediately upon completion.
The deal can be financed from available cash and credit lines and is expected to close by the beginning of the fourth quarter, the company said.
“The acquisition can be beneficial for Continental to become more independent of auto manufacturers and the tire business,” said Frank Schwope, a Hanover-based analyst with NordLB. “Continental has reduced debt as planned and now has the opportunity to invest again.”
Veyance has about 200 full-time employees at its headquarters off Cleveland-Massillon Road. John Hamilton is its president and chief executive officer. He succeeded CEO Tim Toppen in November 2010.
Fairlawn Mayor Bill Roth said Tuesday that a top-level executive telephoned him Monday and said that no immediate changes were planned for the Fairlawn headquarters.
The company, the former Goodyear division called Goodyear Engineered Products, still makes Goodyear-branded products, including rubber hoses and conveyor belts. Veyance also uses the Internet address www.good yearep.com.
But Continental, a Goodyear Tire competitor, could stop using the Goodyear brand. The Journal Star newspaper in Nebraska reported that Veyance will no longer use the Goodyear brand on the products that come out of the company’s Lincoln plant once the sale is complete. The Lincoln plant has made Goodyear products going back to the 1940s, the newspaper reported.
There will be limitations on using the Goodyear brand once the sale is concluded, a Veyance employee said. As Veyance and Continental’s ContiTech division integrate their operations they will work with customers to minimize any disruption, he said.
Goodyear on Tuesday had little to say on what might happen.
“We are currently assessing the situation and reviewing our agreements with Veyance,” Goodyear spokesman Keith Price said.
Goodyear sold Goodyear Engineered Products in 2007 to Carlyle Group for nearly $1.5 billion; the division was renamed Veyance, derived from words “convey” and “performance.” Engineered Products dated to 1898, before Goodyear started making tires.
At the time of the sale in 2007, Veyance said it had a “long-term license agreement” to continue carrying the Goodyear name on its products.
Continental is targeting a fifth consecutive year of record sales in 2014 after deliveries of parking-assistance systems and braking electronics helped lift sales last year.
The ContiTech unit, which makes hoses, conveyor belts and artificial leather, employs 29,700 and generated about $5.3 billion in sales last year, or about 12 percent of the group’s revenue.
Combined with Veyance, the Continental unit will have sales of about $7.38 billion and employ 39,000 globally. It generates about half its sales in the U.S.
The combination of the two companies is expected to generate savings of about $102 million over four years, ContiTech chief Heinz-Gerhard Wente said on a conference call.
“This acquisition will enable Continental to come a step closer to its strategic goal of increasing further our proportion of sales to industrial customers and private end users,” Chief Executive Officer Elmar Degenhart said in the statement. “The planned integration of Veyance into our ContiTech division will expand our position in rubber and plastics technologies on a worldwide basis.”
Continental intends to increase business to industrial customers to 40 percent of group sales from 28 percent currently. After the acquisition, the rate will rise to 32 percent, ContiTech’s Wente said.
The company narrowed net debt to about $6.29 billion at the end of 2013 from $7.27 billion a year earlier. Standard & Poor’s, Fitch Ratings and Moody’s Investors Service all raised Continental’s credit rating last year to investment grade after borrowings stemming from the takeover of the former Siemens AG car electronics unit called VDO in 2007 were reduced.
Fitch said Monday that the acquisition of Veyance will not have an immediate impact on Continental’s ratings.
“The negative effect on credit metrics is modest and should be offset by the mildly positive impact on the group’s business profile,” the credit-rating company said.
Continental aims to outpace growth in the auto market by focusing on components that help reduce vehicle emissions, increase auto safety and facilitate in-car communication links and expanding sales to other manufacturers. Continental in January forecast that 2014 sales will grow about 5 percent this year, more than double a 2.4 percent expansion in global car production.