The BK Birla group is in talks with Pirelli SpA of Italy to offload 50% of its stake in Birla Tyres in a deal worth around $150 million (Rs.6.5 bn).
The transaction involves the spinning off of Birla Tyres, which is currently a - leased division - of Kesoram Industries, into a separate joint venture. An equity stake will then be offered to the foreign partner.
Internationally there are only three tyre majors viz. Goodyear, Bridgestone, Michelin.
The $ 7 bn Pirelli group has two core areas of operations - cables and tyres - with wide geographical presence. Pirelli’s tyres units target the high–end and high performance brands with its Pirelli and formula brands to avoid competing with the industry big wheels.
Birla Tyres has an installed capacity of one million tyres and tubes per annum and a market share of 10% in the bus and truck tyre segment. It was leased out to a consortium of four Birla companies viz. Century Textiles, Jayashree Tea, Kesoram and its 100% subsidiary, Bharat General. A profit sharing formula was worked out between the companies whereby Century held 60%, Kesoram 20% and the other two companies, 10% each. The three-year lease agreement is slated to expire on March 31, 2000. Once this happens Kesoram will come back to Birla Tyres.
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