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1986- A look into the past: Goodyear pays raider's ransom

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Goodyear pays raider's ransom

(Editor's Note: This story is part of our #TireBiz30 in which we feature one archived story every day of September to celebrate Tire Business' 30th anniversary. Each story represents one of the most relevant news story published in our pages for that year.)

AKRON — Goodyear manage­ment has ended Sir James Gold­smith's takeover bid by agreeing to buy out the Anglo-French fi­nancier's 11.5-percent stake in the firm.

The total cost of the multi­faceted deal, announced Nov. 20, could run as high as $3 billion after all aspects of the buy-out and a company restructuring are com­pleted.

Goldsmith and his partners will receive $49.50 for each of their 12.5 million shares in Goodyear, or about $618.8 million, some $91 mil­lion more than they paid for them. The company also agreed to reim­burse Goldsmith for "certain ex­penses, and to indemnify (him) against certain claims." Good­year did not specify how much the expenses and compensation will cost.

Goodyear also announced a tender offer to buy back 40 million of its own shares at $50 each for a total of $2 billion. Meanwhile the company will carry out its previ­ously announced restructuring program. This involves the sale of its Celeron Corp., Goodyear Aero­space Corp. and Motor Wheel Corp. subsidiaries, the imple­mentation of an early retirement program and "wide-ranging ex­pense reduction measures."

For his part, Goldsmith and his group agreed not to purchase Goodyear stock for five years.

In a letter to employees, Good­year Chairman Robert E. Mercer said he believed Goldsmith with­drew his takeover bid because of tremendous civic pressure.

"In my opinion, the sight of whole communities rising up against an unwarranted takeover attempt was the major factor in Goldsmith's decision to sell out," Mercer said. "The name of Good­year is still ours to maintain, cherish and protect," he said. Goldsmith, however, indicated he was pressured into accepting Goodyear's offer by a bill in the Ohio Legislature that was close to putting a weapon in Goodyear's hands that could have seriously injured his bid.

On Nov. 19, the state Senate ap­proved a bill that carried several amendments tailored to aid Good­year in its battle with Goldsmith. One of the most lethal amend­ments was offered by Ohio State Rep. Robert Cupp. It would permit a company's directors to selective­ly lock out certain major shareholders from using their options to buy more stock. The bill, which still had to be approved by the Ohio House, was expected to be delivered to Ohio Gov. Richard Celeste for signing by the week­end.

Other amendments involved in the bill would allow Goodyear to include such intangible assets as patents when assessing the value of the company, and would protect directors from liability in the case of company loans made to em­ployee stock ownership plans.

On Nov.19, Goldsmith said that he again proposed a tender offer of $49 per share for all Goodyear shares that he did not control.

"After Mr. Mercer and his ad­visers again rejected our proposal, we carefully evaluated our options against the background of the proposed Ohio legislature and deter­mined that we had no other al­ternative but to agree to the com­pany's proposal that it repurchase our shares at $49.50 per share, plus expenses."

On Nov. 19, Goodyear stock had fallen to $41.75 a share.

In accepting the deal, Gold­smith said that his partnership would "use our best efforts to make available to Goodyear any banking facilities we arranged for our offer."

Part of the price Goodyear paid to fend off the takeover bid in­cludes shouldering some heavy debt, Mercer said. Midway through the takeover battle Good­year reportedly tripled its line of credit within the banking indus­try to $3 billion-about the Cost of the announced buy-back program. Company officials were unavail­able to comment on the credit total.

Goodyear also may pay back some of the debt incurred in the buy-back through the sale of the three subsidiaries. An industry analyst suggested that Goodyear could gain as much as $1.5 billion on the sale of its Celeron subsidiary, which Good­year bought in 1983 and had in­vested about $1 billion in its oper­ations.

The sale of the Goodyear Aero­space subsidiary could fetch Good­year as much as $700 million, although others believe the aero­space operation may not be as valuable as it once was.

The effect of the takeover bid and its solution upon Goodyear already is being felt. With Good­year's two major areas of diversi­fication on the selling block, the company already is cutting away at other operations.

Since the takeover bid, Good­year has eliminated its blimp operations in Europe, cut support for Formula One racing in Europe, dismembered its Howdins Ltd. operation in the United Kingdom and dispersed its key research staff and Operations between its Luxembourg and Akron facilities.

"Make no. mistake about it, Goodyear would have been much better off today if the Goldsmith group had not attempted to raid us," Mercer said.

Goodyear and Goodyear Aerospace are major employers in Akron, and the citizens of the city reacted to. Goldsmith's takeover bid in a manner that a Congressman from the area likened to the bombing of Pearl Harbor. Mercer made Goldsmith's nationality an issue and the city rallied to the call, holding meet­ings, petition drives, stock-pur­chasing programs, and even planned a prayer meeting in Washington.

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