Investor group demands changes at Goodyear

AKRON — A shareholder's group that said it owns 10% of Goodyear's publicly traded stock is calling on the tire maker to take steps to "reverse a period of negative performance" and hopefully restore value to the company's stock.

Elliott Investment Management L.P., a Florida-based investment firm with $55 billion in assets, sent a letter on May 11 to Goodyear CEO Richard Kramer and the company's board of directors detailing reasons for what it called the tire maker's poor stock performance while outlining steps it said the company should take to "reverse a period of negative performance," including:

• Appoint five new "highly qualified" individuals to its board to improve governance and spearhead change;
• Divest its corporate retail stores and use the proceeds to pay down its debt and improve its financial flexibility; and
• Form an operational review committee to develop an operational and development plan.

"We believe that, taken together, these steps will strengthen Goodyear's financial position, bolster its competitiveness globally and create sustainable value, potentially driving Goodyear's stock price to exceed $32 per share (approximately 179% upside from current levels). Moreover, we believe all of these steps are achievable in the near term," the company wrote.

At this writing, Goodyear stock is trading at $13.96 per share, up from $11.72 at the close of business on May 10. Over the past year, the stock reached a peak of $15.49 per share on Aug. 15, but dropped to as low as $9.67 on Dec. 26.

"It is an unfortunate fact for Goodyear and its investors that over the past decade, owning Goodyear stock has been a disappointment," Elliott Investment wrote. "We believe the company's poor stock performance is a direct result of its significant margin erosion, suboptimal go-to-market strategy and unfocused brand."

Goodyear issued statement in the early afternoon, saying it valued input from shareholders and is reviewing the recommendations.

"We intend to meet with them to discuss their views in more detail," the company said in the statement.

It is unclear at this point if or when a meeting will be scheduled.

Goodyear defended its management, said its board has "a strong track record of making value-enhancing strategic decisions on behalf of shareholders.

"We regularly review the Company's strategic plan to ensure that Goodyear is best positioned to deliver strong, sustainable shareholder value. As part of our strategy roadmap, Goodyear continues to strengthen our leadership position in the global tire industry as we advance our connected business model and innovate for the future of mobility."

Founded in 1977, Elliott Investment said it has identified several experienced executives to join the tire maker's board.

At year-end 2022, Goodyear operated 569 retail tire stores in 38 states and Washington D.C., under the Goodyear Auto Service, Raben Tire and Just Tires brands, with an estimated $540 million in annual sales. Goodyear also operates 160 retail stores in Europe and Asia/Pacific along with 230 Goodyear Commercial Tire & Service Centers in the U.S.

Selling the retail stores, Elliot claims, "would generate an increase of more than $4 per share in the company's stock price, while allowing the retail platform to grow under more focused and better-capitalized ownership."

Elliott Investment estimates Goodyear's retail holdings represent $1.5 billion in annual revenue and generate as much as $195 million in pre-tax operating income.

In addition, the investment firm claims that a review of Goodyear's selling, general and administrative (SG&A) costs could drive at least 114 basis points of margin improvement. It also claims that a revision of Goodyear's market and brand strategies "could drive an incremental 271 basis points of operating margin expansion.

"Together, these initiatives could create more than $16 per share of value," Elliott Investment wrote.

The investment firm said it has a "strong conviction in the significant value-creation opportunity achievable," and said that Goodyear, soon to celebrate its 125th anniversary, "plays an important role in the U.S. economy, commands a leading global position, enjoys a strong brand and is poised to benefit from industry tailwinds."

Despite that, Elliott Investment wrote, Goodyear stock "has meaningfully and consistently underperformed. Relative to the S&P 400, Goodyear has underperformed by 90% over the past five years and 143% over the past 10 years."

The investment firm cited three factors for its perceived Goodyear shortcomings: industry-low operating margins; underutilized retail platform; and loss of investor confidence.

"Despite leading scale, Goodyear's margins are the lowest in the tire industry, trailing its closest peers, Michelin and Bridgestone, by approximately 700 basis points," Elliott Investment wrote. "Not only has the company failed to close the margin gap versus these peers, but in recent years the gap has continued to widen."

Elliott Investment made it clear it wasn't seeking reductions in plant capacity or workforce, or any " increases in leverage.

"On the contrary, the changes we are seeking at Goodyear would reduce leverage, accelerate growth and lay the groundwork for a more sustainable future."

Elliott Investment closed its letter by reiterating is respect for the company and its role in American history.

"Given the scale of the issues the company faces and the urgency of addressing them, we are sharing this letter and our related materials publicly at AcceleratingGT.com.We believe that our recommendations — enhancing leadership and oversight, monetizing Goodyear's retail platform, and developing a margin improvement plan — will make Goodyear a better company for its customers, employees and shareholders for decades to come."