Bridgestone, the world's largest tyre maker and Toyo Tyre and Rubber Co have agreed to form a business alliance and cooperate in raw material procurement and production amid surging prices of rubber and oil.
Bridgestone, based in Tokyo, will also acquire an 8.7 per cent stake in Osaka-based Toyo, which in turn will purchase 0.5 per cent in Bridgestone, the two companies said in a statement.
The transfer of shares is scheduled for October 16, according to the statement.
The alliance would help the two companies source rubber and petroleum-based synthetic materials at lower prices and face market competition better.
''The tyre and the rubber industry is confronted with unprecedented changes in the business environment such as structural changes in demand due to bipolarisation of market into high performance products and general-purpose products, structural changes in competition due to emerging power with low-priced products, and structural changes in earnings due to steep rise of raw material cost,'' the two companies said.
''Under such environment, by effective use of strengths and business resources of Bridgestone and Toyo, this alliance is expected to create synergy-effect of additional corporate values for both Bridgestone and Toyo,'' it added.
The two companies will use each other's production facilities and work together on new production methods and developing advanced tyre technology, the statement added.
Bridgestone expects a 32 per cent fall in its current year net income as it pays more for raw materials while Toyo has predicted a 64 per cent drop in earnings.
Competition from emerging economies such as China, South Korea, and India is also a major factor for the failing fortunes of tyre companies like Bridgestone and Toyo.
Benchmark Tokyo rubber prices have climbed more than 70 per cent since late 2006 on robust demand from China and overall strength in the global commodities markets.
The two will discuss the alliance further and set up project teams for respective sectors in order to create increased efficiencies in effect business synergies.
The alliance is subject to regulatory clearances and compliance with anti-trust and necessary reporting conditions.