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Michelin launches $1.6 billion rights issue

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Michelin launches $1.6 billion rights issue

Automotive News Europe -- September 28, 2010 10:31 CET

PARIS (Reuters) -- French tiremaker Michelin unveiled a deeply discounted 1.2 billion euros ($1.6 billion) rights issue to fund growth in booming emerging markets and set new long-term sales and profit goals.

Michelin said on Tuesday it was now targeting operating profit before non-recurring items clearly above 2 billion euros by 2015, a 25 percent increase in sales volumes by 2015, and a 50 percent rise in volumes by 2020.

Managing partner Michel Rollier confirmed 2010 targets set in July for positive free cash flow, an operating margin close to 9 percent, and an increase of more than 10 percent in sales volumes.

Fellow managing partner Jean-Dominique Senard said sales would probably grow 10-12 percent this year.

"We do not need a capital increase for purely financial reasons -- we need one to grow," Rollier told a news conference.

Michelin shares were down 8.3 percent at 59.82 euros at 0821 GMT, against a Stoxx Europe 600 auto index down 2.1 percent.

Senard said the company saw 45 percent of sales coming from emerging markets by 2020, compared with an estimated 33 percent this year. The group would need the equivalent of one new factory per year in extra capacity in the coming years, he said.

Michelin is already due to open three new factories in 2012.

The company said it would achieve "significantly positive" free cash flow in 2010-2015 and would keep its dividend payout ratio at around 30 percent over that period.

Capital expenditure will increase to around 1.6 billion euros in 2011 and remain around that level for at least the four following years, Michelin added in a statement.

One Paris-based trader said: "This is a surprise as we were expecting capex to decrease in the years to come."

The trader added: "We believe the market was not expecting Michelin to make such a move, though the ultimate goal, including boosting its capacity in emerging countries, can clearly be justified."

Michelin set a subscription price of 45 euros per share for the capital increase and said investors were entitled to buy two new shares for every 11 held.

Shares in Michelin closed at 65.26 euros on Monday having risen 22 percent this year.

The subscription period for the capital increase runs from Sept. 30 until Oct. 13, Michelin said. The new shares will start trading on Oct. 25.

German rival Continental AG on Monday announced its third major bond issue in a year.

Michelin is rated Baa2 with Moody's, BBB with S&P and BBB- with Fitch. All three agencies have a stable outlook for the company.

Read more: http://www.autonews.com/apps/pbcs.dll/article?AID=/20100928/ANE/309289983/1193#ixzz10pxOZzgB

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