Sameer Africa has signed a franchise deal with a Chinese tyre manufacturer in a strategic shift following the exit of former partner Bridgestone Corporation.
The new Chinese partner is expected to provide Sameer with cheaper tyres in its portfolio to boost its sales volumes.
Sameer last year ended a tyre manufacture and distribution contract with Japanese multinational Bridgestone, which also provided the Kenyan manufacturer with technical support.
“We have already concluded a licensing agreement with a leading Chinese tyre manufacturer and Summit tyres from China will be manufactured according to our specifications and under our direct supervision,” Sameer chairman Erastus Mwongera said in the company’s latest annual report.
Bridgestone has appointed another distributor of its tyre brands in the Kenyan market, raising competition against Sameer that previously had exclusive rights to the franchise.
Sameer, which is listed at the Nairobi Securities Exchange, is set to introduce a new brand of tyres from the Chinese firm later this year.
Mr Mwongera added that the Summit tyre brand will help Sameer to compete in a market where price wars are escalating with the expansion of cheap Asian imports that now have a 50 per cent market share.
Besides the Chinese firm, Sameer is also in talks with another company to supply it with technical expertise in tyre manufacturing as it seeks to scale up production.
“In 2014, we will aggressively move to contract with a technical partner to replace Bridgestone. Indeed, talks are already at an advanced stage and we are confident of securing a suitable partner by end 2014,” he said.
Sameer says it intends to upgrade its factory equipment to produce new tyre sizes and boost overall production speed.
The tyre firm’s technical partner is expected to take a significant equity in Sameer from majority shareholder Sameer Investments Ltd (SIL) as part of the deal, replicating the arrangement the company had with Bridgestone.
As part of the exit agreement, Bridgestone in December sold its 14.9 per cent stake in the tyre firm for Sh207.4 million to SIL, a company associated with billionaire Naushad Merali.
This pushed SIL’s ownership in Sameer to 72.15 per cent from the previous 57.25 per cent and it remains to be seen what portion of the enlarged stake will be ceded to the prospective new technical partner.
“The intention was that such acquired shares would then be held by SIL to be offered to a new strategic investor and technical partner,” Sameer said in a statement.
SIL bought out Bridgestone at an estimated Sh5 for each of the 41.4 million shares, valuing the deal at Sh207.4 million.
The firm’s stock currently trades at Sh6.9, representing a 38 per cent jump over the deal price.
Mr Mwongera said Bridgestone has since 2007 “offered little by way of technical assistance to our tyre manufacturing division,” explaining why the two firms had to part ways.
Sameer is currently focusing on selling its Yana brand of tyres but is betting on the expansion of its product portfolio to aggressively push sales in the region.
The company’s net profit in the year ended December more than doubled to Sh401.1 million, helped by the sale of a two-acre land along Mombasa Road for 297.5 million.
Sameer said it made a gain of Sh255 million from the land sale which helped boost earnings as operating profit before tax remained unchanged at Sh1 billion.