One truth of the stock market is that investors vote with their wallets.
When Elliott Investment Management L.P. sent a letter to Goodyear's top brass in May, detailing the firm's dissatisfaction with what it called Goodyear's poor stock performance and outlining three major steps it should take, Goodyear stock saw a bump.
Elliott said that 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.
Goodyear agreed to meet with the West Palm Beach, Fla.-based investment firm, which claims to own 10% interest in Goodyear, to hear them out.
In the letter, Elliot presented recommendations to "strengthen Goodyear's financial position, bolster its competitiveness globally and create sustainable value." Those ideas included adding five new board members and operational review to oversee shareholder-value creation — like the divestment of Goodyear corporate stores (to pay down capital debt).
The result of that meeting, Goodyear announced July 25, is the addition of three new independent board members: Joseph R. Hinrichs, president and CEO, CSX Corp.; Max H. Mitchell, president and CEO, Crane Co.; and Roger J. Wood, former co-CEO, Tenneco Inc.
Goodyear will also form a Strategic and Operational Review Committee, to be chaired by Goodyear CEO Rich Kramer and board members James A. Firestone, Thomas L. Williams, Mitchell and Wood.
Goodyear's stock price (around $16) is at the highest it has been in a year-and-a-half.
"We have been encouraged by Goodyear's openness to taking actions necessary to realize its full potential, and we are confident that our agreement enhances governance at Goodyear and ensures that the company will remain focused on long-term shareholder-value creation," Elliot Investment said in a statement.
Goodyear declined to comment on what the deal will mean in the future, specifically concerning its retail locations.
Initial news of the letter may have sounded like raiders storming the Goodyear gates, but Elliott made a point in its documents to praise Goodyear, lauding the company for its robust original-equipment business, especially for electric vehicles.
Goodyear, in turn, has been receptive.
Only the future knows how this may shape Goodyear, which celebrates its 125th anniversary this year.
One thing we know is that both parties want the same thing: to make Goodyear more valuable.
And investors will be sure to vote (with their wallets) accordingly.