Michelin & Cie., the world’s second-largest tiremaker, announced a surprise 1.2 billion-euro ($1.6 billion) share sale to finance its global expansion. The stock fell the most in 12 years in Paris trading.
The rights issue, in which investors may buy 2 new shares at 45 euros each for every 11 held, will help Michelin fund capital spending of 1.6 billion euros in 2011 and beyond, compared with about 1 billion euros this year.
The French tiremaker, which ranks behind Bridgestone Corp. of Japan in production, said it needs extra cash to fund plant investments in India, Brazil and China as well as other undisclosed plans. Michelin aims to add the equivalent of a new factory every year to harness annual tire-market growth averaging 9 percent in emerging markets, compared with less than 2 percent in western Europe, Managing Partner Jean-Dominique Senard said at news conference in Paris.
“This is a complete surprise, and the problem is that investors are being asked to take things on faith,” Mike Tyndall, a London-based automotive specialist with Nomura Securities in London, said in a telephone interview. “Michelin is testing their patience.”
Michelin slumped 10 percent, or 6.66 euros, to 58.60 euros at the 5:30 p.m. close in Paris, the biggest decline since September 1998.
‘Blank Check’
“We’re not asking for a blank check,” Senard said. “We wouldn’t have dared to ask the market for capital if we hadn’t already demonstrated our ability to deliver growth.”
Announcing a 71 percent decline in net income for 2009, Chief Executive Officer Michel Rollier said in February that tire markets were still showing “too much volatility” for the company to reinstate the 10 percent operating-margin target originally set for this year, then dropped in 2008.
The company said today it expects to achieve only 1.15 billion euros of the 1.5 billion euros in savings it had pledged between 2007 and 2010. Even without the recession, the cost savings would likely have come up short at 1.31 billion euros, Rollier said in February.
“None of these misses are catastrophic, but you do wonder whether they’ve delivered enough on horizon 2010 for people to see the capital increase as a good idea,” Nomura’s Tyndall said.
Michelin said today it is targeting 2 billion euros in operating profit before one-time items by 2015, 9 percent return on capital and positive cash flow every year -- while paying out 30 percent of its profit as dividends. Sales volumes will probably grow 25 percent by 2015 and 50 percent by 2020.
India, Brazil
The targeted expansion is based on internal growth typified by the Indian, Brazilian and Chinese factory investments, rather than acquisitions, Senard said. “Obviously we’re not going to limit ourselves to these three projects, and there are other plans in the drawer,” he added, declining to elaborate.
While takeover opportunities may arise from reorganization among Asian tiremakers, “we have no such plans as of today,” the executive said.
Subscription to the rights offer will open from Sept. 30 to Oct. 13. The share issue is arranged by BNP Paribas, with Citigroup Inc. and Credit Agricole as associate bookrunners, according to the share-sale document.
The sale should improve Michelin’s debt rating, the company said. Moody’s Investors Service ranks the debt at Baa2, the second-lowest investment grade. The debt has an equivalent rating of BBB by Standard & Poor’s.
Michelin’s first-half net income reached 504 million euros, compared with a 122 million-euro loss a year earlier, the company reported July 30. German competitor Continental AG returned to a second-quarter profit, while Pirelli SpA of Italy raised its full-year sales target in July.
To contact the reporter on this story: Laurence Frost in Paris at lfrost4@bloomberg.net.
To contact the editor responsible for this story: Kenneth Wong in Berlin at kwong11@bloomberg.net
http://jodnet.blogspot.com
The rights issue, in which investors may buy 2 new shares at 45 euros each for every 11 held, will help Michelin fund capital spending of 1.6 billion euros in 2011 and beyond, compared with about 1 billion euros this year.
“This is a complete surprise, and the problem is that investors are being asked to take things on faith,” Mike Tyndall, a London-based automotive specialist with Nomura Securities in London, said in a telephone interview. “Michelin is testing their patience.”
Michelin slumped 10 percent, or 6.66 euros, to 58.60 euros at the 5:30 p.m. close in Paris, the biggest decline since September 1998.
‘Blank Check’
“We’re not asking for a blank check,” Senard said. “We wouldn’t have dared to ask the market for capital if we hadn’t already demonstrated our ability to deliver growth.”
Announcing a 71 percent decline in net income for 2009, Chief Executive Officer Michel Rollier said in February that tire markets were still showing “too much volatility” for the company to reinstate the 10 percent operating-margin target originally set for this year, then dropped in 2008.
The company said today it expects to achieve only 1.15 billion euros of the 1.5 billion euros in savings it had pledged between 2007 and 2010. Even without the recession, the cost savings would likely have come up short at 1.31 billion euros, Rollier said in February.
“None of these misses are catastrophic, but you do wonder whether they’ve delivered enough on horizon 2010 for people to see the capital increase as a good idea,” Nomura’s Tyndall said.
Michelin said today it is targeting 2 billion euros in operating profit before one-time items by 2015, 9 percent return on capital and positive cash flow every year -- while paying out 30 percent of its profit as dividends. Sales volumes will probably grow 25 percent by 2015 and 50 percent by 2020.
India, Brazil
The targeted expansion is based on internal growth typified by the Indian, Brazilian and Chinese factory investments, rather than acquisitions, Senard said. “Obviously we’re not going to limit ourselves to these three projects, and there are other plans in the drawer,” he added, declining to elaborate.
While takeover opportunities may arise from reorganization among Asian tiremakers, “we have no such plans as of today,” the executive said.
Subscription to the rights offer will open from Sept. 30 to Oct. 13. The share issue is arranged by BNP Paribas, with Citigroup Inc. and Credit Agricole as associate bookrunners, according to the share-sale document.
The sale should improve Michelin’s debt rating, the company said. Moody’s Investors Service ranks the debt at Baa2, the second-lowest investment grade. The debt has an equivalent rating of BBB by Standard & Poor’s.
Michelin’s first-half net income reached 504 million euros, compared with a 122 million-euro loss a year earlier, the company reported July 30. German competitor Continental AG returned to a second-quarter profit, while Pirelli SpA of Italy raised its full-year sales target in July.
To contact the reporter on this story: Laurence Frost in Paris at lfrost4@bloomberg.net.
To contact the editor responsible for this story: Kenneth Wong in Berlin at kwong11@bloomberg.net
http://jodnet.blogspot.com
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