The Goodyear Tire & Rubber Company GT recently announced the conclusion of the impending acquisition of Cooper Tire & Rubber Company’s acquisition. The decision to take over Cooper was first made public this February by the company.
In fact, Cooper’s shareholders approved the purchase earlier this year. As a result of the merger, Cooper’s common stock will be delisted from the New York Stock Exchange. The merged entity will be based in Goodyear’s home of Akron, OH.
Per the deal, Cooper shareholders will receive $41.75 per share in cash and 0.907 shares of Goodyear common stock per Cooper share for a total equity value of $2.8 billion. This is equal to a price of $54.36 per share, or a premium of 24% over Cooper’s 30-day volume weighted average price as of the close on Feb 19, 2021. Goodyear shareholders will own roughly 84% of the combined company, while Cooper shareholders will own the remaining 16%.
Besides using cash on hand, Goodyear intends to finance a portion of the transaction through debt financing and has obtained a committed bridge financing facility headed by JPMorgan Chase Bank in North America.
Benefits of the Merger
This historic deal marks the collaboration of two of the biggest American tire companies.
The merger combines two Ohio tire makers with complementary product portfolios, services and capabilities to create a robust U.S.-based leader in the global tire industry, while significantly boosting Goodyear’s foothold in other North American markets. The deal will fortify Goodyear’s product offering by combining the portfolios of the two brands, thus providing a more comprehensive offering across the value spectrum. Cooper will be offered as a brand under the Goodyear corporate umbrella.
The deal integrates Goodyear and Cooper customers, innovation and premium products and solutions, in turn, enhancing Goodyear’s ability to serve more consumers globally. It also provides Goodyear with an increased scale to support greater investments in new mobility and fleet solutions.
Further, the deal steps up Goodyear’s presence in China by nearly two folds and increases the number of relationships with local automakers. It creates a wider distribution for Cooper replacement tires through Goodyear’s network of 2,500 branded retail stores.
The merged entity will bank on Goodyear’s dominance in original equipment and premium replacement tires, and combine it with Cooper’s forte in the light truck and SUV segments, thus providing a more complete offering to customers.
Moreover, by integrating, the new company anticipates to save roughly $165 million within two years of closing of the transaction by eliminating overlapping corporate functions and realizing operating expertise. Additionally, Goodyear will utilize available U.S. tax attributes to generate nearly $450 million that will reduce the company’s cash tax payments and enable it to generate additional free cash flow.
Furthermore, the transaction is likely to boost Goodyear’s earnings within a year, thus solidifying the company’s balance-sheet position and enhancing its ability to reduce leverage in its capital structure.
The acquisition will also bring an array of tire brands together under a single roof, including Goodyear’s Dunlop and Kelly brands, and Cooper’s Mastercraft and Mickey Thompson brands. Apart from this, the combined company will offer tire products and a broad range of services through Goodyear’s existing relationships with original equipment manufacturers, autonomous driving system developers, fleet operators and other mobility platforms.
With compatible business models, organizational hierarchy and distribution network, the deal will amalgamate the best of Goodyear and Cooper to the advantage of Goodyear’s shareholders, customers and employees.
Zacks Rank and Key Picks
Akron-based Goodyear currently carries a Zacks Rank of 3 (Hold).
Notably, shares of company have appreciated 111.8% in the past year compared with the industry’s rally of 126.8%.
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Better-ranked stocks in the auto space include American Axle AXL, BMW AG BAMXF, and Harley-Davidson HOG, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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