Goldsmith Bid Might Be Good for Goodyear
Can there be method to this madness? Sir James Goldsmith, leading a group of international financiers, says he wants to take over Goodyear Tire & Rubber Co. and improve its management performance, when there is no evidence that Goldsmith has any ability to run an industrial company and when Goodyear, which has bested competition here and abroad to stay No. 1 in world tire making, would seem to have no need for lessons in management.
Still, in response to Goldsmith and his associates buying 11.5% of Goodyear stock and announcing their intention to buy up the rest for $49 a share, Chairman Robert E. Mercer of the Akron, Ohio-based tire maker announced Thursday that Goodyear will “restructure” itself by selling several subsidiaries and spending roughly $1 billion to buy in 20 million of its own shares.
The immediate effect will probably be to keep Goodyear’s stock price in the high 40s neighborhood to which it ascended from just over $30 a share on takeover fever. A good deal for Goldsmith and friends who bought their Goodyear at an average of $42 a share.
But is Goodyear’s Mercer buying a short-term benefit for shareholders at the expense of the company’s long-term good? One of the subsidiaries that Goodyear may sell is Celeron Corp., an oil, gas and pipeline company. But it will be selling now at the bottom of the market, while if it waited a few years, experts feel sure it could get a higher price.
Interest of Shareholders
It is the kind of deal that makes you wonder if the interest of shareholders, so concentrated these days on higher current income, and that of the company as a whole are any longer compatible. Put another way, can Goodyear hope to stay ahead of the pack of world tire makers, including France’s Michelin, Japan’s Bridgestone and some energetic Korean companies, if it must stop all the time to give a 2 o’clock feeding to demanding shareholders?
The surprise answer is that the story may end happily. Goldsmith, in spite of himself, may be doing Goodyear a favor, and Goodyear, although reluctantly, may be doing the right thing if it concentrates on tires.
The tire industry has reached the point at which the losers drop out and the long-term winners get even stronger. Goodyear now, in the estimate of analyst Harry Millis of the Cleveland securities firm McDonald & Co., leads the U.S. market with a 30% share, followed distantly at 18% by the combined tire operations of Uniroyal and Goodrich, and 14% for Firestone, 9% for Michelin and 2% for Bridgestone. Internationally, Goodyear has 20% of the tire market, followed by 17% for Michelin, around 9% for Bridgestone and just under 6% for Japan’s Sumitomo.
A Different Approach
Goldsmith, a financier who has a knighthood in England but lives in Paris, has often made money in just such consolidating industries. Usually he buys a mediocre company and breaks it up, selling its manufacturing plants separately to eager competitors. But with Goodyear, his approach was different. According to his public statements, he wanted Goodyear to drop the diversified businesses, such as energy, and concentrate on tires. From reports on Wall Street, it seemed that Goldsmith wanted to bring back the spirit of Charley Pilliod at Goodyear.
Charles Jule Pilliod Jr., who led Goodyear from 1973 to 1982, is the reason Goodyear has remained No. 1. An old-fashioned terror as a business executive, Pilliod took over when Michelin’s radial tires were conquering the market and Goodyear didn’t have them. Pilliod, who had worked for Goodyear all over Latin America and Europe, found his people quaking in their boots, afraid Michelin would eat them up.
But Pilliod turned the situation around by pouring money into upgrading manufacturing facilities and spending heavily on research and development. He made Goodyear’s plants the most modern in the industry; spent $200 million in 1978 in Lawton, Okla., to build what for its time was the most advanced tire plant in the world. When he retired in 1982, he left a company on top of a global industry.
But then the company thought it best to diversify. Tires were seen as a slow-growth business. So Goodyear bought into energy in late 1982, just at the top of the market. The venture has lost money. But more important, with $1.5 billion invested in it, it might have grown as a distraction for management. Goodyear might have become like so many U.S. companies, concentrating on acquisitions to dress up earnings but unmindful of the build-up of a competitor.
Bridgestone of Japan has only a minor presence here at the moment, but like most companies from its country, it is persistent. One analyst who knows the industry predicts that it will challenge Goodyear for the lead by the year 2000.
One thing seems certain: If Bridgestone had the lead that Goodyear has, it would be pressing for ever more market share.
Maybe Goodyear now will do the same. Maybe the Goldsmith raid will prove in time to have been like the fracture that makes the limb stronger when it heals.
