Dec. 6 (Bloomberg) -- Shares of Bridgestone Corp., the world's largest tiremaker, rose 3.5 percent after the company agreed to buy Bandag Inc. to become the largest U.S. supplier of retread tires for trucks.

Shares of Tokyo-based Bridgestone gained 85 yen to 2,550, the largest gain in two months, after it announced the $1.05 billion acquisition of Muscatine, Iowa-based Bandag yesterday. Bridgestone's U.S. unit will borrow ``all the funds'' for the purchase, said President Shoshi Arakawa, speaking in Tokyo.

Bridgestone will gain a network of more than 900 dealers in almost 100 countries, helping it compete with France's Michelin & Cie. and Goodyear Tire & Rubber Co. for sales of reconditioned tires. Japanese companies have announced at least $31.7 billion in overseas acquisitions in 2006, double the tally for last year, according to data compiled by Bloomberg, as they expand in faster-growing economies.

``Bridgestone is trying to accelerate its business strategy in the main overseas markets such as North America and Europe,'' said Yoshihiro Okumura, a general manager at Chiba-gin Asset Management Co., which manages the equivalent of $365 million in assets. ``Mergers and acquisitions seem to be the most efficient way to boost business size and strengthen expertise quickly.''

The company last month said it would reach its target profit margin of 5 percent by 2010, two years later than planned, because it would increase spending to meet demand caused by surging vehicle sales in China, India and other developing markets.

Goodyear

Bandag, founded in 1957, sells retreading equipment and materials and owns tire retail and service operations. Bridgestone will pay $50.75 a share in cash for all classes of Bandag stock, 13 percent more than the common stock's closing price on Dec. 4.

Buying Bandag may help Bridgestone compete against Goodyear, the largest U.S. tiremaker, which offers truck-tire retreading services through its company-owned stores and dealers.

``Higher fuel prices are prompting customers to cut costs,'' by using retreads, said Arakawa. ``It takes time and costs to develop this size of business. We were able to get that all at once.''

Diesel fuel, used by U.S. trucking fleets, cost an average $2.69 a gallon yesterday, 5.2 percent more than a year earlier, according to the Web site of AAA, a U.S. drivers' group.

Highway Service

Bridgestone last year became the world's largest seller of tires for the first time since 2000, according to a survey by Tire Business, an Ohio-based industry magazine. It had an 18.2 percent share in the global tire market, surpassing Michelin with a 17.7 percent share.

The acquisition of Bandag hasn't been reflected to Bridgestone's sales goal of 3.2 trillion yen in 2010, Arakawa said. The company expects to complete the purchase in the end of first quarter or the beginning of second quarter in 2007.

Bandag has 45 percent of the U.S. truck tire retreading business, according to the trade publication Modern Tire Dealer. Goodyear is in second place with 26.5 percent, followed by Michelin at about 12 percent.

Bandag also owns and runs the Tire Distribution System retail unit that sells new and retread tires. The company also holds 87.5 percent of Speedco Inc., a provider of lubrication and tire service to commercial trucks along highways.

Through three quarters of this year, Bandag's sales rose 9.1 percent to $727.6 million and its net income fell 76 percent to $9.03 million, in part because of a $16.4 million loss on discontinued operations.

Bandag has been trying to cut costs to boost profit. The company in June began offering early retirement buyouts. The company had 3,788 employees at the end of last year.

Profit Decline

Bridgestone on Nov. 1 posted a 70 percent decline in third- quarter profit to 17.24 billion yen ($147 million), on rising costs for rubber and oil. Sales rose 11 percent to 738.2 billion yen.

Since peaking in July, the price for rubber futures traded in Singapore fell 35 percent to 158.25 cents per kilogram yesterday. The price is 2 percent lower than a year ago.

In October 2005 Bridgestone agreed to pay Ford Motor Co. $240 million to end a five-year dispute over tire failures for Explorer sport-utility vehicles. Bridgestone's Firestone unit recalled 6.5 million tires in August 2000 as U.S. safety officials linked the tires to 203 deaths.

The decline came in comparison to a year earlier when profit was inflated after the company cut cash reserves that had been set aside for settling U.S. lawsuits involving failures of Firestone-brand tires.

JPMorgan Chase & Co. of New York was Bridgestone's adviser in the Bandag transaction. William Blair & Co. LLC of Chicago advised Bandag.

To contact the reporter on this story: Naoko Fujimura in Tokyo at nfujimura@bloomberg.net; Jeff Bennett in Southfield, Michigan, at jbennett17@bloomberg.net.

Last Updated: December 6, 2006 02:00 EST