Bridgestone, Japan's biggest tire maker, said it would pay $1.05 billion in cash for Bandag, a U.S. maker of retreading materials and equipment, to expand its range of services to cost-conscious truck fleets.
Bridgestone said it would fund the purchase of the U.S. firm through a bank loan.
Shares of Bandag, which would become a subsidiary of Bridgestone Americas, jumped 12% to close at $50.50 in New York Tuesday, approaching the proposed purchase price of $50.75 a share.
"Our view of the acquisition is positive, mainly because it strengthens Bridgestone's position in the retread business where, we believe, it did not have a strong presence," Credit Suisse analyst Toru Iwai said in a note to clients.
Mr. Iwai said the acquisition should contribute significantly to earnings, adding that Bandag's operating margin at 7.3% was higher than Bridgestone's 5.6%.
The deal is aimed at better serving truck fleet operators looking to extend the life of a tire, while also taking advantage of Bandag's international operations in markets such as Brazil, said Bridgestone Americas spokeswoman Chris Karbowiak.
Iowa-based Bandag, whose 2005 sales totaled $921 million, has a global network of franchised dealers and owns a retail operation that sells and repairs tires. It also has a controlling stake in a company that serves commercial truck fleets.
Bandag and Bridgestone expect the deal to close late in the first quarter or early in the second quarter.
Bridgestone has been beefing up global manufacturing capacity, and spending more on marketing and product development in a competitive market where rivals include France's Michelin, Goodyear Tire & Rubber and Sumitomo Rubber Industries.
Bridgestone has aimed to expand international sales of high-end tires, while taking advantage of demand from emerging markets and from construction and mining industries. It said last month it expects annual capital spending of about $2.2 billion until 2011.