Rather than dispel the latest rumor about their businesses, tire makers Titan International Inc. and Goodyear took the easy way out: they proved it is true.
After weeks of industry speculation, the companies announced Feb. 28 Goodyear is selling its unprofitable North American farm tire business to Titan for $100 million. The deal includes Goodyear's Freeport, Ill., plant, equipment and about $47 million in inventory.
The sale also includes a licensing agreement-which will last for a minimum of seven years-allowing Titan to make and sell Goodyear-brand farm tires for the North American market. Goodyear will receive royalties from the sale of those tires, a company spokesman said.
Quincy-based Titan, which reported 2004 net sales of $510.6 million, expects the acquisition to boost annual revenues by about $225 million, said Maurice Taylor Jr., the company's president and CEO, more than doubling its estimated tire-related sales. Titan never has posted total annual sales above $700 million.
Titan's senior lenders will fund the transaction, and the company plans to raise $125 million in long-term debt or complete a public convertible bond sale to reduce the senior debt, the firm said. Federal Trade Commission validation of the sale could be done in 15-30 days, Taylor said, and he'd like to complete the sale-which requires government, regulatory and union approval-by April 15.
Goodyear will remain in the farm tire business outside of North America.
A good deal
Taylor said the transaction truly is good for both sides. Titan obtains a competitor's business-which also happens to carry a huge name in U.S. tire making. The company plans to make Goodyear its premium brand (with Titan as the second), and coupled with its wheel business, will be the top wheel and tire maker to the agricultural sector in North America, he said.
``We're proud Goodyear chose us, and we told them we'd not only protect their name but enhance it,'' Taylor said.
There have been no long-term discussions regarding Kelly-brand farm tires, which also are produced in Freeport, though Taylor did say the brand would be available for the next year.
Goodyear-which posted net sales of more than $15 billion in 2003-will lose about $200 million in annual revenue with the sale. It considers only its consumer and commercial tire segments core businesses, the spokesman said, and has found the farm tire side to be ``challenging'' to its bottom line.
The agreement allows Goodyear to sell a non-core asset, yet also lets the Goodyear brand continue to live on in the hands of Titan, which considers the farm business as core, said Jonathan D. Rich, president of Goodyear's North American Tire unit. Nearly 62 percent of Titan's 2004 sales were generated via the agricultural segment.
``Goodyear tires have been a part of the North American farm for more than 100 years,'' Rich said. ``It was important to us to continue to have Goodyear farm tires as part of the North American farming community.''
Rich also said in a Feb. 28 letter to Goodyear employees the transaction is a cost-control measure and a cash improvement in a non-core area for the company. Goodyear obviously will save money because it won't be making any more investments at the Freeport plant, the spokesman said.
Efraim Levy, an analyst with Standard & Poor's Equity Group, said the sale makes sense because Goodyear's farm tire business hasn't been making money. Now the company doesn't have to invest in it any more, can focus on its core businesses and use the proceeds from the sale toward reducing debt.
While Goodyear's top competitors, Michelin North America Inc. and Bridgestone/Firestone, still have ag tire manufacturing operations in North America, there should be no ego value in keeping up with its competitors, Levy said. ``The primary driver for Goodyear is to shore up its own operations,'' he said. ``They don't have to do everything everyone else is doing.''
More tire choices
Farmers will benefit from having more choices in the ag market, and so will Titan dealers, Taylor said. ``We're going to have much larger selection and faster reaction time and continue to be the low-cost producer in the market,'' he said. ``We'll have the largest and best dealer network, bar none. This deal fits us like a glove.''
Titan has about 1,000 tire stock keeping units-about 100 unique to the company-with the bulk manufactured at its Des Moines, Iowa, tire plant, Taylor said. Goodyear has about 1,100 SKUs, with about 100 of them unique.
Combined, Titan will offer about 1,200 SKUs, with an equal mix being distributed between Des Moines and Freeport, Taylor said. Titan will decide by June whether to relocate its Titan Tire headquarters to Freeport or keep it in Des Moines.
The company owns two other idle tire factories-in Natchez, Miss., and Brownsville, Texas-and has had assets associated with both sites on the selling block. However, now some equipment may be usable in the operational facilities, he said.
``We've had offers to buy some of the equipment, but we haven't gotten the price we wanted,'' he said. ``When we close the deal, we have some tire building machines in Natchez that could increase our efficiencies in Freeport, and some other equipment that we can move to Des Moines. Over time, we'll get a handle on what we have to move in, use or move off.''
Depending on how business develops in the market after the sale, Brownsville may have a future in Titan's plans, though Taylor wouldn't detail the possibility. In March 2004, Titan said a joint venture with an unnamed Asian partner could be based at the Brownsville site, but nothing developed.
As for the Freeport plant, which opened in 1964, Taylor said it will require little work to suit Titan's needs. He said it is a ``beautiful facility,'' and Goodyear has invested a lot of money to make it that way.
Goodyear said once the deal is completed it will phase out some smaller farm tire capacity at factories in Topeka, Kan., and Medicine Hat, Alberta.
Titan vs. USWA-again?
The largest-and maybe only-stumbling block to the Titan/Goodyear deal is approval by Freeport's 725-plus hourly workers, represented by United Steelworkers of America Local 745. Taylor's unsteady relationship with the union is well documented, starting with the location of the tire industry's two longest labor strikes: Titan's Des Moines and Natchez plants.
The successorship clause in the Steelworkers/Goodyear contract, which expires in July 2006, requires that a potential new owner reach a contract agreement with the union before the sale is completed. Taylor said while the feelings haven't changed-``I'm not their favorite person, they're not mine''-he believes what he plans to offer will be a good deal for both sides.
Titan's proposal will include no wage or cost-of-living allowance cuts during the term of the contract, Taylor said, and an extension through Nov. 15, 2010. If the extension is approved, there would be no cuts during that time, as well as a guarantee not to close the plant, he said.
Taylor also said he will offer the site's 457 workers who have 25-plus years of experience the option to get full retirement from Goodyear. Others will have their time capped and be entered into the Steelworkers pension plan, he said, just like the work force in Des Moines after the strike ended in 2001.
Goodyear has agreed to pick up legacy costs, including pension and retiree medical, associated with their soon-to-be former employees, Taylor said.
The USWA's initial reaction to Titan's taking over in Freeport was negative. Steve Vanderheyden, Local 745 president, said the union is ``far from optimistic'' about reaching an agreement with the company.
``Based on our preliminary discussions on Titan's long history of adversarial labor relations and hostility to the USWA, it doesn't appear that Titan is interested in meaningful negotiations with a goal of reaching a contract offer acceptable to our members in Freeport,'' he said.
Taylor conceded it could take time but said he believes it is in the best interests of the workers in Freeport to come to terms. ``I'm the best thing they've got right now,'' he said. ``They can say no, but Goodyear can always close the plant, too.''
`Let the big dogs fight'
It may take about six months to get everything ``sorted out'' from the acquisition, Taylor said, provided it eventually is completed. He expects to see good results sooner rather than later and said he believes the fit of the two companies' businesses will be beneficial at many levels.
For example, Titan provides a large portion of the wheels for log skidders in the U.S., but doesn't make the tires. Goodyear, however, does make them, Taylor said, and that provides an opportunity to capture a bigger part of that market.
Titan wants to fight the smaller battles, he said, and is happy to take on the ag sector while Goodyear takes on its bigger markets. Michelin and Firestone present big challenges, but Taylor, not surprisingly, is confident.
``(Goodyear) has its own war with other companies, and in our teeny world it's a little different,'' he said. ``We'll just let the big dogs fight, and trim the tails of the little dogs ourselves.''