Goodyear Tire & Rubber Co said it would buy Cooper Tire & Rubber Co in a $2.8 billion deal to beef up its portfolio in the high-margin light truck and SUV segments and strengthen its presence in North America and China.
Cooper shares, which historically had stronger margins than Goodyear, were up 20% in pre-market trading, while Goodyear shares fell 4%.
The deal, announced Monday, nearly doubles Goodyear’s presence in China and expands the distribution of Cooper replacement tires through Goodyear’s network of 2,500 retail stores across the country. The United States and China, the world’s two largest tire markets, account for about a third of the world’s industrial volume.
The merged company will also benefit from Goodyear original equipment and Cooper’s strength in the fast-growing SUV and light truck segments.
The global tire industry was hit hard in 2020 when the COVID-19 pandemic led to a sharp decline in demand for replacement tires and original equipment, forcing automakers to shut down production.
However, industry experts expect car demand to rebound this year, driven by the introduction of COVID-19 vaccines, low interest rates and healthy savings for consumers as people don’t spend money on large purchases during the pandemic.
Under the terms of the transaction, the implicit cash and stock consideration for Cooper’s shareholders is $ 54.36 per share, a premium of 24% over the Feb. 19 closing price.
Goodyear expects continued cost synergies of approximately $ 165 million within two years of signing the agreement. Goodyear shareholders will own approximately 84% of the combined company, while Cooper shareholders will own approximately 16%.
Goodyear intends to leverage the cash portion of the transaction, which is expected to close in the second half of 2021. The combined company will be based in Akron, Ohio.
Either way, Cooper’s quarterly revenue fell nearly 3%, while its net profit attributable to the company decreased 25.8% to $ 37.99 million for the fourth quarter, ended December 31.
Lazard is Goodyear’s chief financial advisor, while Goldman Sachs & Co LLC acts as a cooperative.