27 October 1997

Cover Story - Burning Rubber (The Wall Street Journal Europe)

Company: Tofan Grup

Country: Romania

Estimated `97 revenues: $300 million

When his countrymen toppled dictator Nicolae Ceausescu in 1989, Gelu Tofan was ready for a fresh start abroad. But the U.S., South Africa and Canada all turned him down for visas. So Mr. Tofan stayed home, and stuck to what he knew best: tires.

The former factory foreman saw an opening in Romania's shoddy distribution system, which doled out tires under quotas, often met late if at all. Starting with a $40,000 loan and living out of his office and car, Mr. Tofan went straight to big industrial customers, delivering directly to factory courtyards and helping them to jump the queue.

Six years later his company, Tofan Grup, is Romania's biggest tire producer, with an estimated 70% market share for production and 85% of distribution. It's also the only major tire maker in the region still controlled by a local investor.

The achievement is doubly remarkable in a country where "businessman" is often used as a dirty word and many of the fortunes made since 1990 have come under official scrutiny. Observers say Mr. Tofan built his empire on grit and hard work, not cronyism and connections; company officials are quick to point out that government anti-graft investigators combed its books (like those of many other private companies) but found nothing to investigate.

Just two years after plunging into distribution, Mr. Tofan had a nationwide business, and big enough cash flow to build a greenfield retreading plant outside Bucharest. At end-1995, he launched a successful $35 million bid for 51% of Danubiana S.A., his former employer and Romania's biggest tire maker. Looking to gain controlling stakes in two additional factories, Mr. Tofan went shopping for a strategic partner, eventually hooking up with Nomura International PLC, which took a 49% stake this year for $60 million.

Analysts give the 36-year-old Mr. Tofan high marks for his energy and shrewd business sense, but warn that the sprawling conglomerate will be tough to manage. "I'm not sure he can swallow such a big piece of cake," says Lucian Perl of Danube Fund, a local venture capital fund.

That may be, but Tofan isn't through growing yet. In a bid for vertical integration, the group is negotiating to take majority stake in a state research company for tires, plus two rubber and steel companies. It's also investing heavily in modernization in an effort to bring its tires up to Western quality standards, and is mooting an initial public offer, probably by the end of next year, for as much as 33% of the company. All in all, not bad for a start-up.

Reed John. "Burning Rubber." The Wall Street Journal Europe 27 October 1997: 22.

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