Current Issue

PREMIUM CONTENT FOR SUBSCRIBERS ONLY

Commercial Business Retail Suppliers Wholesale Distribution

Mitchell: 'The deal was good for Goodyear'

Order Reprints

Was the dissolution of the partnership between Goodyear Tire & Rubber Co. and Sumitomo Rubber Industries Ltd. good for Goodyear? Industry analyst Nick Mitchell thinks so.

Here's why Mitchell, senior vice president of research for Northcoast Research Holdings LLC and the author of Modern Tire Dealer’s monthly Your Marketplace column, is so pleased, and is maintaining a BUY rating on Goodyear's stock.

* Upon the closing of the deal, Goodyear will own 100% of Goodyear Dunlop
Tires Europe and Nippon Goodyear.

* Although Sumitomo will own the Goodyear Dunlop Tires North America plant in
Tonawanda, N.Y., and the rights to develop, manufacture, market and
distribute Dunlop branded tires for motorcycles and Japanese-owned vehicle
manufacturers in North America, Goodyear will acquire control of
the Dunlop-related trademarks for the tire-related business in North America. That includes the consumer and commercial replacement channels and non-Japanese-owned vehicle manufacturers.

"The benefits from the alliance had been waning in recent years, and Goodyear was
able to sever the relationship in a low-cost and capital efficient manner that
allowed it to retain the operating entities and marketing, distribution and selling
rights that best align with its long-term strategic plan," he says.

As part of the deal, Goodyear will be required to pay Sumitomo a net $271 million, plus  repay $55 million of an existing debt within three years (Goodyear could pay off the existing load with the estimated $56.9 million proceeds it will receive from selling its 3.4 million shares of Sumitomo Rubber common stock). Mitchell says the arrangement should not have a material impact on Goodyear’s segment operating income.

"While it is tricky to truly understand the potential earnings power of the assets Goodyear divested, the ability to structure a deal that yields a 14.8% to 18.5% return on the net cash outflow is a testament of management’s resilient focus on managing the business for profitable growth that will drive shareholder value in the long run."

For more information, check out these links:

"Goodyear and Sumitomo dissolve alliance."

"Goodyear: No supply issues to follow SRI split."

"Will Sumitomo build Falken tires in Buffalo?"

Recommended Products

July 2020

August 2020

Related Articles

March was a good month for Vogue wheels

Month-by-month analysis: ´Symbol of a new Goodyear:´ Was the launch of Assurance back in February a resounding success or a lot of hot air? Here´s a hint: Goodyear recently turned its first quarterly

Dunlop laps the field early: Plenty of tires were introduced during Automotive Aftermarket Industry Week. Goodyear was first out of the gate

Upcoming Events

18 May

The Tire Cologne 2021
Koelnmesse

You must login or register in order to post a comment.