U.S. News: Replacement Tire Manufacturer Buys Sears-Owned Service Chain

TBC Corporation one of the largest marketers of automotive replacement tires in the U.S., today announced that it has entered into a definitive agreement to acquire National Tire & Battery (NTB) from Sears, Roebuck and Co.
NTB, through its 226 retail tire and automotive centres in 20 states, currently generates annual revenues in excess of $425 million. TBC will pay approximately $225 million in cash for NTB through debt financing arranged by JPMorgan. All figures in U.S. dollars.
The transaction, which is subject to approval under the Hart-Scott-Rodino Act as well as other customary closing conditions, is expected to be completed by the end of this year. TBC, the nation’s largest independent tire retailer, will grow to 1,144 locations with the addition of the NTB stores.
The acquired stores will be integrated into TBC’s Tire Kingdom company-operated retail store network, which currently has 357 locations. TBC also has 561 franchised tire and automotive service centres under the “Big O Tires” name.
Larry Day, TBC President and CEO, stated, “The acquisition of NTB enables us to expand our national footprint by 25% with the addition of strong, profitable retail locations in many attractive markets where we currently do not operate. With the purchase of NTB, we will make a strong entrance into the Texas market with 36 stores in Dallas, Houston and Austin as well as into Illinois with 19 locations in the greater Chicago area. In addition, we will enter several other new major metropolitan markets with a significant store base, including Birmingham, Boston, Kansas City, Philadelphia and Pittsburgh. We will also strengthen our existing retail presence in the Washington, D.C. metropolitan area as well as in the Cleveland and Columbus, Ohio markets.” Day continued, “During the past several years, NTB has been actively engaged in improving store productivity and profitability by closing underperforming stores, tightening expense controls and focusing on higher margin product assortments. While TBC will profit from those initiatives, we believe there are many other benefits that can be realized through the integration of these stores into our Tire Kingdom retail network. This transaction provides an excellent avenue to increase our volume of private brand tires, which are not currently sold by NTB, as well as significant opportunities to expand the level of mechanical services. In addition, this acquisition will strengthen our vendor relationships and will enable us to more effectively leverage our operating costs.”
Day concluded, “We are excited about the opportunities for growth and enhanced profitability that this acquisition provides. Unlike our previous acquisitions, NTB has no stand-alone infrastructure, so we anticipate that it will take six to eight months to ensure a seamless transition of distribution and store support functions away from Sears and into the Tire Kingdom network. Our team has successfully integrated other retail chains, and we have confidence in our ability to assimilate the acquired stores into our existing operations. Our plan is in place, and we look forward to realizing the operating synergies inherent in this transaction.”
Based on current projections, TBC reiterates its earnings guidance for 2003 in the range of $1.40 to $1.45 and expects the NTB acquisition to be accretive to 2004 earnings. TBC will provide further guidance after the final structure of the debt financing is determined and the transaction is completed.