NTN Completes SNR Investment Strategy

NTN Inc. (Japan; TSE: 6472) announced it has reached agreement with Renault SAS (France; PSE: RNO) on a phased plan to gradually acquire SNR Roulements, the bearing manufacturing division of Renault. In January, eBearing presented a highly detailed background of the two businesses, SNR's position and the acquisition efforts to date: SNR (Societe Nouvelle de Roulements, or the New Bearing Company) is the world's seventh-largest bearing manufacturer, supplying the automotive, industrial and aerospace industries. The company has five plants in France: Annecy, the headquarters; Argonay (high precision bearings); Meythet (roller bearings); Seynod (rolling elements, ball bearings, clutch release bearings, thrust bearings); Ales (ball bearings, automotive wheel hub bearings. And five plants in other countries: Bielefeld, Germany (linear guides); Curitiba, Brazil (ball bearings, tapered roller bearings); Turin, Italy (spherical roller bearings); Sibiu, Romania (standard ball and roller bearings); Atlanta, Georgia, USA (aerospace bearing maintenance). After initially proposing a simple one-step acquisition, NTN's takeover has now been modified to a phased plan, reportedly in hopes of forestalling critics in the EU, France, and even within SNR itself. The acquisition should proceed as follows: 1. Late October 2006 - NTN acquires initial ownership of 35% 2. Late October 2007 - NTN acquires ownership stake totaling 51% 3. Between October 2008 and 2010 - NTN acquires ownership stake totaling 80% The phased-in ownership strategy neatly disarms many critics of the deal, who now lack a specific point of reference for dominant NTN influence and/or dominant NTN ownership. Complaints about a minority investor are unlikely to gain traction, while the advent of 51% ownership would lack impact, coming a year later and on the heels of the existing 35% ownership. Finally, the long lead time to 80% ownership would sap the resources and resolve of any remaining opponents, particularly once 51% ownership is established. The promise that Renault will retain at least 20% ownership may be enough to appease the most vocal critics, particularly those to feared losing access to Renault's generous social safety net, benefits and work schedules. As soon as it was announced, NTN's potential involvement in SNR generated a high level of concern, particularly from employees. Their distaste and mistrust for the likely NTN takeover has been fueled by both organizations' poorly considered refusal to keep workers and management informed. That mistrust and frustration culminated recently in a mid-June massive walkout of workers and management from SNR's Annecy headquarters. Automaker Renault, facing difficult times, is restructuring and reorienting many of its far-flung business operations. SNR is one of the businesses being restructured; NTN in fact walked away from a mid-2005 bid to acquire SNR, before being lured back for more talks. In October 2005, SNR divested its ball production to NN Inc. (USA). Announcing the final acquisition form, NTN outlined the expected synergies: • improve NTN's market by capitalizing on SNR's market presence in Europe and France • expand NTN's business and improve competitiveness by capitalizing on SNR's areas of technical excellence and innovation, including sensors and other technologies • combine productivity, quality, and technology to enhance market opportunities and improve efficiency; leverage production bases in Europe, Romania, Brazil and other key markets; combine R&D resources; and give employees and their expertise the opportunity to move between organizations • improve new product development speed by integrating and leveraging technologies and experience, particularly as it applies to the auto parts business; also grow the whole business in a more competitive atmosphere, following market demands for modularity and compact design, reinforcing the partnership with Renault NTN and Renault have an established joint venture relationship, manufacturing CV joints in France since 1998. Now, with the SNR buyout, Renault will have a closer relationship with NTN than any other ball and roller bearing manufacturer. NTN said it hopes to build on that and have the opportunity to supply Renault with a wider range of NTN automotive bearings. Finally, NTN said it expects to benefit from SNR's strong European presence, particularly by using SNR's R&D and market access resources in Europe. Meanwhile, it will leverage its own resources to bring SNR bearings into more world market opportunities.