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Breakingviews - Capital Calls: Goodyear tilts balance on tire deal

Jul 27, 2019; Long Pond, PA, USA; Goodyear Eagles tires are cooled down during practice for the Gander RV 400 at Pocono Raceway. Mandatory Credit: Matthew O'Haren-USA TODAY Sports

MELBOURNE (Reuters Breakingviews) - Concise insights on global finance in the Covid-19 era.

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PUMPED UP. Goodyear Tire & Rubber can put a positive spin on its plan to buy Cooper Tire & Rubber for $2.8 billion. Although the target secures a 24% uplift on shares already trading at a four-year high and keeps some possible upside with a 16% stake in the combined company, it’s the buyer burning rubber.

Some $165 million of expected synergies, taxed and capitalised, are worth considerably more than the premium, per Breakingviews calculations. It requires putting them on a lower multiple than the conventional 10 times to balance things out. Even then, Goodyear reckons the acquisition will yield additional value worth $450 million today from tax benefits. And there may be separate manufacturing savings to come.

Moreover, the implied return on investment from a deal that would nearly double Goodyear’s presence in China, assuming Cooper generates the operating profit analysts expect, is more than 14%. That should help put Goodyear on a roll. (By Jeffrey Goldfarb)

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.

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