Goodyear Tire & Rubber Co. is buying competitor and fellow Ohio tire maker Cooper Tire & Rubber Co. in a deal valued at as much as $2.8 billion, the companies announced Monday morning.
Goodyear said the acquisition will combine two portfolios of complementary brands and solidify its position as the third largest global tire manufacturer based on revenue. Cooper, based in Findlay and originally founded in 1914 in Akron, is the fifth largest North American tire maker. (The two largest global tire manufacturers are Bridgestone and Michelin.)
For subscribers:Goodyear CEO explains how Cooper acquisition makes them stronger
"This is a transformational milestone for our companies," Rich Kramer, Goodyear chairman, chief executive officer and president said in a conference call.
Industry analysts were giving the deal a thumbs up.
James Picariello, analyst with KeyBanc in Cleveland, said he thinks the acquisition "represents the rare instance of a clear, great deal for both parties" in a note to clients, calling it a "clear win."
Picariello wrote. Cooper shareholders will benefit from a higher stock price, while Goodyear benefits by improving its marketing positions in the United States and China, and Cooper's strong mid-tier presence. The deal, once it closes, is expected to immediately add to Goodyear earnings, he said.
Industry analyst John Healy, with Northcoast Research Holdings, said in trade publication Modern Tire Dealer that adding Cooper gives Goodyear an opportunity to realign its brands in a way that it may not have been able to do otherwise. He also said it is too early to say if there will be plant closures but expects there will at least be "production alignments" at some point.
Both Goodyear and Cooper shares strongly rose. Cooper shares closed up $12.87, or 29.4%, to $56.64 Goodyear shares closed up $2.92, or 21.1%, to a 52-week high of $16.82. Shares traded as high as $17.54 during the day.
The companies had about $17.5 billion in combined 2019 sales, according to a news release.
The deal is expected to close in the second half of the year, subject to regulatory and shareholder approvals.
Goodyer said the "total enterprise value" of the deal is $2.5 billion, with the "total equity value" being about $2.8 billion. Cooper shareholders will receive $41.75 in cash and Goodyear stock; Goodyear said the "implied" cash and stock valuation works out to $54.36 per share, close to where Cooper shares were trading early Monday. The $54.36/share price puts the deal value at nearly $2.8 billion, based on the number of Cooper shares outstani Your stories live here.
Fuel your hometown passion and plug into the stories that define it. Create AccountWhen the deal closes, Goodyear will own about 84% of the combined company and shareholders will own about 16%. Goodyear said it will use a combination of cash on hand as well as new debt as part of the financing. Cooper brands include Cooper, Mastercraft, Roadmaster, and Mickey Thompson. The company has about 10,000 employees around the world and 10 factories. The combined company will have about 72,000 employees and 56 factories around the world. The deal will strengthen Goodyear in the United States and will nearly double the company's presence in China, the Akron tire maker said. Adding Cooper increases the number of relationships with China automakers, the company said. Goodyear said it expects to have about $165 million in savings through "synergies" in two years once the deal is completed.
The initial cost-savings does not include eliminating any manufacturing jobs or any factory closings, executives said. Much of the savings will come from eliminating duplicative corporate and research and development functions, they said. Goodyear said the combined company will be headquartered in Akron but expects to maintain a presence in Findlay.
The acquisition will add "the mid-tier power of the Cooper brand" particularly in light truck and SUV segments to Goodyear's premium replacement and original equipment tires, Goodyear said.
The deal will provide significant immediate and long-term financial benefits, create opportunities for expansion of some Cooper factories, and create additional revenue growth by adding Cooper brands to Goodyear's global distribution network, the company said. Goodyear said it will be able to use available U.S. tax attributes to generate what it said will be $450 million in value, reducing tax payments and allowing for additional free cash flow. “The addition of Cooper’s complementary tire product portfolio and highly capable manufacturing assets, coupled with Goodyear’s technology and industry leading distribution, provides the combined company with opportunities for improved cost efficiency and a broader offering for both companies’ retailer networks," Kramer said in a news release. We are confident this combination will enable us to provide enhanced service for our customers and consumers while delivering value for shareholders.”
Brad Hughes, Cooper president and chief executive officer, said in the release that Cooper has transformed into a dynamic, consumer-driven organization.
"This transaction marks the start of a new chapter for Cooper, which we are entering from a position of strength," Hughes said. "We believe that it represents an attractive opportunity to maximize value for our shareholders, who will receive a meaningful premium as well as the opportunity to participate in the upside of the combined company. We look forward to the opportunity to combine Cooper’s considerable talents with Goodyear’s, and to be part of a bigger, stronger organization that will be competitively well-positioned to win in the global tire industry.”
The deal was announced along with Cooper's fourth quarter and 2020 financial results. Cooper reported a profit of $143 million on sales of $2.5 billion for the year.
Goodyear earlier in the month reported a loss of $1.25 billion, or $5.35 a share, on revenue of $12.3 billion for fiscal 2020. That compares to a loss of $311 million, or $1.33 a share, on revenue of $14.7 billion for fiscal 2019. The company had a profitable fourth quarter.
Jim Mackinnon covers business. He can be reached at 330-996-3544 or firstname.lastname@example.org. Follow him @JimMackinnonABJ on Twitter or www.facebook.com/JimMackinnonABJ.