Elliott Investment's "path to value creation" includes three recommendations:
- Divest its corporate stores (roughly 715 locations worldwide, according to Elliott) and use the resultant injection of capital to pay down debt;
- Appoint five new members to the board to spearhead change; and
- Begin a comprehensive operational review.
In a broad sense, this move mirrors Goldsmith's actions nearly four decades ago. Just as Goldsmith had aimed to create more value for shareholders and himself — he said at the time he owned more than 12.5 million shares of Goodyear, or about 11.5% of the company's stock — Elliott Investment is doing just that.
By implementing these changes, Elliott Investment said it believes Goodyear's stock price would increase — trading at around $11 per share at the time of the letter — to $16 per share by selling the retail stores, and to $32 per share with operating improvements.
Contrast that to 1986: According to news accounts, Goldsmith bought his first 88,000 shares of Goodyear that fall for $31.75 each. A month later, the price per share jumped to $41.
Elliott Investment's letter also prompted Goodyear's stock to surge, to $14.91 on May 15 from $11.42 on May 11. There's no doubt investors like hearing ideas that will make them even more money.
That's about where the similarities end.
While Goldsmith initially aimed to secure control of the tire maker, backed by $5 billion from a British finance company, it appears as if no other major Goodyear stakeholders are supporting the move, at least publicly. We contacted two major shareholders — BlackRock Holding, which owns 12.3% of company shares, and Vanguard Group, which has 10.1% — and both declined to comment on Elliott Investment's proposal.
In its letter, Elliott Investment asked for a meeting with Goodyear. The tire maker, to its credit, immediately agreed.
If and when such a meeting will take place is unclear. Unlike the Goldsmith episode, however, it appears as if both sides are willing to listen to each other.
Don't, however, think any agreed settlement will be without tumult.
Goodyear has a long, proud history of operating retail locations. It was less than five years ago when the tire maker launched its "Roll by Goodyear" retail tire concept — bringing a retail tire showroom minus service bays to vibrant lifestyle areas.
Elliott Investment also questions Goodyear's move to partner with Bridgestone Corp. and create the 50/50 joint wholesale venture TireHub L.L.C. The firm said that Goodyear "hastily redirected the entirety of its ATD (American Tire Distributors Inc.) volume to TireHub."
TireHub, Elliott Investment wrote, "faced significant challenges" because, among other reasons, it operated fewer distribution centers than ATD, had technological issues and lacked selling prowess as a newcomer to the market.
"Goodyear's go-to-market strategy has damaged its brand, market share and pricing," Elliott Investment wrote.
Adding new board members, too, will be dicey. Elliott Investment said it has identified five executives, either currently or formerly employed, who have relevant experience in strategy and operations. It's clear that these hand-picked execs would take the role on only if significant change would result.
Elliott Investment, unlike Goldsmith's takeover bid, made a point in its documents to praise Goodyear, the Goodyear brand and its legacy as "an iconic U.S. manufacturing leader."
It lauds the company for its robust original equipment business, especially for electric vehicles, and said it is not calling for any reduction in workforce or capacity at Goodyear's tire plants across the globe. The group, however, did not offer an opinion on Goodyear's corporate workforce.
In addition, Elliott Investment did not weigh in on Goodyear's acquisition of Cooper Tire & Rubber Co., which was finalized two years ago. The jury still seems to be deliberating on that one.
"We want to reiterate our deep respect for Goodyear," Elliott Investment wrote.
In 1986, some believed it was a forgone conclusion that Goldsmith would successfully take over and pillage Goodyear. Employees, stakeholders and government officials — including U.S. Rep. John Seiberling, who's paternal grandfather, Frank Seiberling, co-founded Goodyear — rallied behind the company, and the result was somewhat different.
Goldsmith, who died in 1997 at age 64 from pancreatic cancer, sold his stake in the company for $620.7 million — making a profit of around $93 million, according to the New York Times — while also agreeing not to purchase any Goodyear stock for five years.
The tire maker offered to buy 40 million shares from stockholders, at $50 a share. That move alone cost Goodyear $2.6 billion, forcing it to divest assets and reduce staff.
"Our ship is a little lower in the water now, and it's a little shorter,'' Robert E. Mercer, Goodyear's chairman at the time, told the Times. "We're lean and mean, but it would be wrong to say that we haven't been wounded.''
Some say Goodyear emerged a much different company.
No matter how this latest investment unrest shakes out, it is clear that Goodyear is an important brand, both today and in the future.
A strong Goodyear is not only good for the tire industry and the thousands of tire dealers who sell its products, but also for Northeast Ohio, where Goodyear is revered arguably more than any other Ohio entity.
This latest episode comes as Goodyear prepares to celebrate its 125th anniversary in August. It will be interesting to see how the rubber meets the road in the months ahead.