Monday, November 23, 1998

Recyclable tires are set to roll into the green

Businessman's belief in recycling technology could help environment and reduce use of rubber

By

Used rubber can be a nuisance in love and a hazard in nature. Used or new, it's big coin. And trying to replace it as a component in tires can be a financial stretch.

Montreal businessman Jean Lanthier, 60, has thrown his life savings into trying to market a revolutionary technology to make recyclable plastic tires to replace those made of rubber. Besides eliminating the environmental problem of dumping old rubber tires, the new technology can make Lanthier and his backers filthy rich.

Unknown to most members of the public, the technology to manufacture recyclable tires exists. But bringing it to market requires money and, not surprisingly, multinational tire companies aren't lining up to invest in a new process which will make their current manufacturing plants obsolete. If Lanthier succeeds, the pervasive use of rubber will begin to shrink to where it was 500 years ago when Christopher Columbus discovered natives playing games with bouncy balls in the Amazon jungle.

As he scans the horizon, beyond the haze of anticipated New Year's celebrations, Lanthier envisions the $700,000 (Cdn) seed money needed to roll his recyclable tires onto the world's superhighways. As he pokes through his sandy particles of memory, he recalls his slouched figure poring over a sea of official-looking memorandums at a desk in the offices of ScotiaMcLeod on Sherbrooke Street. It's a brisk autumn day. The year is 1992. TheToronto Blue Jays have just defeated the Atlanta Braves to become the first team located outside the U.S. to win a World Series.

Our man - an engineer by training and a stock broker by choice - has a predilection for brown tweed jackets and earth-colored ties. He looks pensive. Perhaps an IPO is in the offing or could it be that tangy lasagna dinner which awaits him?

Whatever he's thinking that fall day six years ago, it's certainly not about rubber tires or recyclable ones made of polyurethane, a derivative of crude oil. All that changes with the ring of his phone. A business acquaintance with a raspy voice is about to tell Lanthier a story which will change his life.

In the early 1960s, a small European company discovers how to make a molded, plastic ski boot using a liquid injection process. The shareholders register a patent and reap the financial benefits for the 17-year protection period. The boot becomes an industry norm.

But the company executives know they have to come up with another winner to pick up the slack once the patent has expired.

Starting in the early 80s, they invest about $50 million (U.S.) in research and development to learn how to use the same liquid injection process to make a recyclable tire. At one point there are 20 chemists, mechanical engineers and technicians working on the process.

Away from the prying eyes of the tire industry, this group experiments with chemical components and the mechanical design of new machinery to manufacture a recyclable tire.

The revolutionary process consists of injecting two reactive polyurethane components into a mold mixed with Kevlar to reinforce its walls.

Within seven to eight minutes at room temperature, the liquids and the Kevlar coalesce.

The mold is removed. A tire has been produced. By the late 80s, the group of scientists has produced recyclable polyurethane tires for agricultural vehicles, which are independently tested and found to be superior to rubber tires. But by this time, they have also depleted their cash reserves. Looking for a strategic partner, they strike a $300 million (U.S.) deal with Iraq to build a plant in that country to produce both the chemicals needed for the manufacturing process, as well as tires for commercial vehicles.

Iraq pays a multi-million-dollar advance, placed in a European trust account. But when dictator Saddam Hussein invades Kuwait on August 2, 1990, the wheels fall off the project. The subsequent Gulf War and the economic embargo by the Allies freezes the advance and prevents the joint project from moving ahead.

The European company, which has been counting on the deal, is declared insolvent and put under trusteeship, where it still languishs almost two years later when the raspy-voiced businessman phones Lanthier to ask his help him in finding investors.

Lanthier subsequently travelled to Europe to see first-hand the facilities. What he found astonished him. A 500,000-square-foot site with a pilot plant equipped to produce recyclable test tires for automobiles and trucks, as well as for industrial and agricultural applications. The hard assets were appraised at $20 million (U.S.). Of even more value were the world rights and patents on machine designs, chemical compounds, software and products.

Lanthier has access to independent tests which show the advantages of polyurethane recyclable tires as compared with traditional rubber radial tires: o 50 percent better wear resistance o 30 percent lighter in weight o 30 percent less rolling resistance o 10 percent better gas mileage It is also impervious to blowouts. Even with a hole in it, the tire can run flat for 50 kilometers because of the self-sealing qualities of its flexible polymer.

The agricultural version of the tire runs on five pounds of air pressure, compared with 10 pounds for traditional farm tires. That means less compaction of soil and 30 percent more agricultural productivity.

Lanthier was convinced. He resigned from his six-figure stockbroker's job to pursue full-time relaunching the company. Five years after his initial visit, he still has not succeeded, but not for lack of effort.

Chewed through savings

He learned that the major tire companies and chemical manufacturers were not keen to bankroll his efforts to introduce a recyclable tire, although an executive of Bridgestone acknowledged to him that once the technology was brought to market the major tire companies would be forced to adopt it.

Lanthier's education in the University of the World wasn't free. He chewed through his life savings - several hundred thousand dollars - jetting around the world, trying to strike deals with various tire companies. In case you're wondering, he's divorced.

But challenge does have its redemptive aspects. Along the way, he's come up with what he believes will be a strategy and financial formula to bring the recyclable tires to market. Lanthier is no longer seeking investment money from tire companies. Instead, he is working to put together a small group of investors to put up a $700,000 (Cdn) loan.

Lanthier will then engage a major international accounting firm to perform due diligence - both on the assets and the test results of the recylable tires. Once it is confirmed that the recyclable tire is a reality, a prospectus is to be put together for a private placement of $21 million (Cdn), followed by a listing on NASDAQ. The $21 million would be enough to bring the European plant to life producing agricultural tires and to build a pilot plant in Montreal which would serve as a showcase for automotive and truck tires. Both the provincial and federal governments have expressed interest in the project.

At this point, those investors who had put up the $700,000 loan would be rewarded with $7 million worth of stock in a company, which in Year 1 would have a minimum value of $70 million based on its being reopened and active.

The key to the marketing strategy is that Lanthier and his group will sell turn-key operations - fully-equipped factories - to any tire companies which want to sell recyclable tires. However, his new company will maintain proprietary rights to the secret polymer ingredients which make up the tire - much like Coca Cola guards its secret formula for syrup.

To put matters in perspective, the world market for new tires is $100 billion (U.S.) annually. If Lanthier's new company were to garner 3 percent of the market, it would rank among the top 50 revenue-producing companies in Canada. As if all that weren't mind-boggling enough, those recyclable tires come in all the colors of the rainbow for the business tycoon who wishes to color coordinate them with his personality type.

Warren Perley is a former Gazette journalist who is president of Ponctuation Grafix, a graphic design and marketing company.

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