Linglong Tire Suspends Trading, May Relate to Major M&A

Shandong Linglong Tire Co., Ltd. announced on Nov. 11 to suspend trading and said it is planning for a major event, which may related to overseas asset procurement.

The company said that as there are uncertainties, to prevent abnormal volatility of its share trading, it would suspend trading from Nov. 14, 2016, until relevant events are settled.

Acquisition Plan Decided Earlier

The announcement made by Linglong Tire proved the industrial hearsay that the company planned to purchase an international company.

In Aug., Linglong Tire board chairman Wang Feng disclosed in an interview that the company may launch horizontal integration and acquisition, but the other side should possess its own brand and technology to complement Linglong Tire.

A person close to the event disclosed that Linglong Tire participated in the SEMA Show in Las Vegas and hit it off with an overseas tire producer, hence the intention of acquisition.

Linglong Tire’s IPO on July 6 provided a capital basis for its horizontal acquisition strategic plan.

With regard to the target of acquisition, Wang put forward two considerations:

The first is channel. Currently, Linglong Tire’s overseas development mainly relies on agents. If it acquires a company with distributing channels, it will be able to know better about the overseas customers and overseas markets, so as to conduct better R&D.

The second is brand. Wang believes that Linglong Tire has accumulated certain competitiveness in terms of R&D, quality management and product development, but its brands are still weak. If it gets the opportunity of merging with a better brand, it will gain more customers.

Ultimate Target of Becoming A Top 10 Producer

The ultimate target of Linglong Tire is to become one of the world’s top 10 tire producers.

The company expects to combine its development plan with China’s “One Belt and One Road” initiative and further expand international capacity cooperation.

Linglong Tire has worked out a “3+3 strategy”, namely constructing three domestic manufacturing bases and three overseas manufacturing bases.

Currently, the company’s three domestic bases are basically formed, namely Shandong Zhaoyuan headquarters, Shandong Dezhou base and Guangxi Liuzhou base.

Talking about overseas bases, the only one is the manufacturing base in Thailand, and Linglong Tire’s next targets are building a manufacturing base in the Europe and America, respectively.

If all the overseas bases are constructed by Linglong Tire alone, it will take a long time and the company has no advantage in terms of experience or resources.

As a result, acquire a tire company with brand horizontally might be the most feasible and most convenient method for Linglong Tire.

Under such circumstances, the fundraising platform of the listed company will be able to provide greater financial support to its M&A.

Wang also has his own way of consideration in location selection of overseas plants:

The first is whether the politics and economy of the country or region are stable;

The second is the market where the country or region locates should be a major sales destination of Linglong Tire;

The third is the country or region should be able to play a positive role as a driving force.