AKRON — Goodyear´s long-awaited sale of its Engineered Products division won´t result in wholesale changes within the business.
The Carlyle Group, a private equity firm that agreed to buy the rubber hose and belt manufacturer from Goodyear for about $1.5 billion in cash March 23, views Engineered Products as a healthy company with great growth potential. It intends to build the business, not slice it up, Carlyle Managing Director Daniel Pryor said.
The acquisition actually is being made by EPD Inc., a private entity created by Carlyle to buy the business.
Once the transaction is complete-which won´t happen until the companies receive standard regulatory approval and Carlyle and the United Steelworkers settle on a contract-Goodyear will be able to focus primarily on its core consumer and commercial tire businesses, a Goodyear spokesman said.
Robert Keegan, Goodyear chairman and CEO, said the company will use proceeds from the sale to reduce debt, address legacy obligations, support growth in its tire businesses and improve the firm´s overall balance sheet. Specific plans about debt reduction and investments will be announced later.
Basically, Pryor said at the firm´s Washington, D.C., headquarters, it´s a win-win situation, with both companies getting what they wanted.
Carlyle bought the division for three reasons, he said: It´s a good business that offers many opportunities for growth, both in the U.S. and internationally; it´s led by a solid management team that guided it out of the red in 2001 and into the black; and the company has a lot of upside.
As part of the deal, Goodyear agreed to a trademark licensing agreement with Engineered Products to use Goodyear´s brand and other trademarks.
"Carlyle is a good company with smart management that typically buys good opportunities," according to industry analyst Dennis Virag, president of Automotive Consulting Group Inc. in Ann Arbor, Mich. "They buy businesses and operate them."
On the other hand, the sale removes a big noncore segment from Goodyear´s portfolio, gives it money to help clear out debt and sets the stage for growth of its core business, he said.
Timothy Toppen, who has been president of the business since 2001, said the sale of 99-year-old Engineered Products division won´t interfere with its daily operations.
"The cornerstone of our operating philosophy stays intact," he said. "We want to help our customers grow their businesses for the long term."
Toppen and his management team will continue to run the company under Carlyle and the firm will remain headquartered in the Akron area, Pryor said.
While it pretty much will be business as usual, once the deal is done the operation won´t have to compete against tires for funding from its parent. "The business is in a position where every investment will be judged on its own merits," Pryor said.
The Carlyle Group is one of the world´s largest private equity firms with $54.5 billion under management, investments in more than 185 companies and 750 employees in 16 countries. So it has the financial resources to help build and expand Engineered Products, which employs 6,500 in 32 manufacturing plants worldwide, and makes conveyor belts, power transmission belts, hose and tank tracks for military and off-the-road vehicles.
Pryor called the deal a "unique opportunity" for the equity firm. "Goodyear Engineered Products´ served markets offer many opportunities for growth, both in the U.S. and internationally," he said.
While the operation could find itself on the selling block in the next several years, Carlyle isn´t treating it as a business on a short leash.
"We typically assume a five-year holding period and then we either sell a business or take it public," the executive said.
He said his company has a good relationship with the United Steelworkers, and talks between Carlyle and the USW on a labor pact will begin soon. However, negotiations on an agreement could take some time to complete. When Titan International Inc. purchased Goodyear´s North American farm tire business for $100 million in February 2005, contract talks between Titan and the USW dragged on for about 10 months before the two sides reached a five-year deal.
A union spokesman said it´s hard to say how long it will take to iron out a contract. "Our position is that we´ll sit down with the interested buyer at the appropriate time, prepared to bargain in good faith. The Goodyear contract successorship language requires that the USW and the prospective buyer reach a new contract agreement prior to any sale being finalized."
USW officials weren´t surprised that an equity firm bought the business, he said, adding that Carlyle and Engineered Products probably would be a good match.
The USW represents employees at three companies owned or controlled by Carlyle: Plymouth, Mich.-based Key Automotive, which makes air bags, seat belts and steering wheels; Wheatland Tube of Wheatland, Pa., a producer of continuous weld and electronic weld tubes; and United Components, based in Pottstown, Pa., a manufacturer of filtration products, fuel and cooling systems.
Since early March, it had been rumored that the sale of Engineered Products would take place within two months. It´s a move analysts have urged the company to make for some time.
Now, with Engineered Products on its way out the door, Goodyear will be far closer to the position it wants to be in-a producer of commercial and consumer tires. That´s what it´s been shooting for since it began its turnaround several years ago.
The sale drew praise from analysts who, without exception, liked the deal and said it benefited both Goodyear and Engineered Products.
Efraim Levy, an analyst with Standard & Poor´s, said it was extremely important for Goodyear to rid itself of noncore assets and focus on its core tire operation. "I give them credit for their turnaround, but they´re not out of the woods yet," he said. He expects Goodyear will make a stock offering down the road.
Saul Ludwig, an analyst with KeyBanc Capital Markets, said shortly before the sale was announced that he expected the deal to be made soon. He also said it was important for Goodyear´s financial health to rid itself of noncore properties.
In an investors report, Ludwig predicted other moves-including additional plant closings or downsizing of facilities in Europe, South Africa or Asia-could occur as the company "moves to put the finishing touches on its global manufacturing footprint."
In addition, he said, the sale of Goodyear´s off-the-road tire, international farm tire and aircraft tire businesses are possibilities.
Ludwig also anticipates the tire manufacturer will make an equity offering.
"By having all asset sales and plant restructurings clearly defined, the equity offering can be made with no lingering uncertainties," he said.