When news broke Feb. 22 that Goodyear was offering $2.5 billion to buy Cooper Tire, it took me back to my beginnings at Rubber & Plastics News. When I started here in February 1988, Japan's Bridgestone Corp. was in the middle of purchasing Firestone.
But that deal had a few twists before it was completed, something that doesn't appear will happen with the Goodyear-Cooper acquisition. Bridgestone's first offer was $1.25 billion to purchase 75 percent of Firestone's tire manufacturing operations. But when Italy's Pirelli stepped in with a $1.86 billion offer for the whole company, Bridgestone trumped that with its $2.6 billion winning bid, equivalent to about $5.8 billion in today's dollars.
There has been no such drama thus far in the proposed deal between Goodyear and Cooper, unlike when Apollo Tyres Ltd. tried to acquire Cooper in 2013 for roughly the same amount Goodyear is set to pay now.
On paper, the deal looks good, and top executives Richard Kramer of Goodyear and Bradley Hughes of Cooper say the combination is set up to be successful from the start. Don't be surprised, though, if there are a few bumps in the road along the way. It took a number of years and much work before the Bridgestone/Firestone combination became as successful as expected.
The same can be said of Continental's 1987 $650 million acquisition of General Tire, as well as Michelin's $1.5 billion purchase of Uniroyal Goodrich in 1989.
There's a lot to like about the proposed Goodyear-Cooper marriage. The "Buy American" crowd will root for the combination of the two largest U.S.-based tire companies, both Ohio firms with histories dating back more than a century. Of course, Cooper also gives Goodyear a much-needed boost in China, where it has an enviable place in the consumer OE market, which Goodyear expects to translate into big gains as the Chinese aftermarket matures in the coming years.
Even the stock market, which tends to view tire manufacturing stocks much less favorably than other high-tech industries, seems to approve, albeit with some reservations. Cooper's stock jumped about 34 percent from before the announcement to the market close on March 3, while Goodyear's was up more than 35 percent.
A report in Barron's, though, pointed out that Goodyear's stock lost investors an average of 9 percent a year over the past five years. Cooper's meanwhile, returned about 5 percent a year over that time, and 10 percent based on boosts in stock prices after the deal was made public. Even that, the report said, pales in comparison to the 17 percent annual return for the S&P 500 and 16 percent for the Dow Jones Industrial Average over that time.
Leave it to Wall Street to look for the clouds rather than the silver lining.
