Row risks UAE firm's plant bid

MAG and Continental reach deadline over deal to rescue German tyre-making factory in France

Sticking point: Continental's tyre factory on the outskirts of Paris employs more than 1,000 workers.

The planned rescue of a mothballed German tyre factory in France by a UAE industrial group could stall because of a row over technology transfer. The fate of the Continental factory on the outskirts of Paris has become a cause celebre for French trade unions and politicians after the tyre giant announced its planned closure in March.

Continental has given the Sharjah-based Moafaq Al Gaddah (MAG) until the end of today to make clear its intentions regarding the planned rescue. "We received the draft version of a letter of intent with a series of questions, which we have answered, many weeks ago," said Alexander Luhrs, a Continental spokesman. "There is a time when we need to take a decision." The plant, which produced 7.5 million tyres last year, is scheduled to shut down next March with the loss of 1,100 jobs. Most of the workers have already been laid off as Continental seeks to cut costs in Europe, where it has an overcapacity of 15 million tyres.

MAG said it was still interested in concluding a deal despite the disagreement between the two groups over how much tyre-producing technology Continental is willing to cede to the UAE concern. "We have been trying to buy a tyre factory for 16 years but nobody was willing to sell because the market was booming," said Fawaz Sabri, the MAG vice chairman for strategy and finance. "So this was the first real opportunity presented to us."

Despite its lack of experience in the industry, MAG is confident it can turn the factory around. "Continental's problem was they had no market. We have our markets in North Africa, which we could supply from our production. And we have our brand. We have a lot of experience in building a brand," Mr Sabri said. Thousands of workers demonstrated outside a Continental shareholders meeting in Hanover in April and the French minister for economic recovery, Patrick Devedjian, has accused the German company of intentionally trying to avoid a potential competitor from saving the plant.

Mr Luhrs denied that. "We cannot sell a factory with machines and technology just like that," he said. "It has taken us a long time to arrive where we are. MAG has no experience in producing tyres, so they need the basic know-how. Of course we won't sell our most precious asset." Tyre makers compete across premium, budget and ultra-budget market segments. "We won't be selling the premium ones, where the largest margins are made," Mr Luhrs said. "As for the two other segments, there is a lot of pressure in the market because the Asians are feeding it with cheap products in a quite aggressive way."

He said the group was therefore ready to give MAG the means to produce products that would not make the UAE company a direct competitor. But MAG has accused Continental of reneging on an earlier commitment. "The discussions we had when we started with them was to give us all the technology, the licence and everything. Now they want to withdraw some machines and give only limited licences. They also want to fix the price before any due diligence is carried out," said Mr Sabri. He added the company was seeking a compromise solution, but declined to disclose what price it was willing to pay for the factory.

As many as 600,000 jobs have been lost in France this year, according to the Mediapart website, as the global financial crisis has taken its toll on the country's economy. Worker demonstrations have been held across France, with some angry employees even holding their employers captive. The car manufacturing industry has been among the hardest hit sectors. The car maker Peugeot Citroen is cutting 2,000 jobs at its Sochaux and Rennes factories, while Renault is also laying off 1,000 staff. Other tyre makers are also shedding jobs including Michelin and Goodyear who together plan to cut their workforces by almost 2,000.