Under pressure by its largest investor to uplift its earnings, tyre maker Goodyear Tire & Rubber Company has announced a transformation plan to optimise its portfolio, deliver significant margin expansion and reduce leverage. The plan includes optimisation of its chemical business, the Dunlop brand and the off-the-road equipment tyre business, which will realise gross proceeds in excess of US$2 billion. Goodyear to sell its synthetic rubber and chemicals business
Goodyear’s chemicals business, with annual revenue of about US$1 billion, manufactures styrene-butadiene rubber, polybutadiene rubber and other materials and chemicals used in tyres.
The company has also initiated a specific and actionable cost reduction plan encompassing footprint actions and plant optimisation; purchasing; SAG; supply chain; and R&D. With many unique workstreams, Goodyear adds it has a clear line-of-sight to 100% of the cost savings, which it aims to be US$1 billion by end of 2025.
The company has identified opportunities in North America to optimise brand and tier positioning, rationalise SKUs, increase customer and channel profitability and enhance coverage in premium product lines.
With the benefits of cost reduction and top line actions, and net of the impact of expected asset sales and inflation, the company expects segment operating margin to double from approximately 5% in 2023 to 10% by the fourth quarter of 2025.
Goodyear says it will strengthen its financial profile through enhanced earnings, cash flow generation and debt reduction, moving the company closer toward an investment-grade rating. It expects debt reduction of approximately US$1.5 billion, net of approximately US$1.1 billion for restructuring.
The review was driven by Paul Singer’s activist hedge fund, Elliott Investment Management, which is one of Goodyear’s largest investors. Earlier this year Elliot Management proposed an overhaul of the tyre maker with the goal of lifting the company’s share price.
This plan follows a comprehensive evaluation by the Strategic and Operational Review Committee of the Board of Directors to evaluate all strategic, operational and financial opportunities to maximise value.
“Our transformation plan represents a clear path to create a more profitable and focused Goodyear,” said Goodyear Chairman/CEO/President Richard J. Kramer. “The Review Committee explored all value maximising opportunities and identified specific, detailed initiatives to streamline our portfolio, expand margins and fortify our balance sheet, and do so with expediency. Building on our strengths, this plan will enable Goodyear to enhance and expand our leadership position, deliver profitable growth across markets, create significant value for our shareholders and – ultimately – lay the foundation for success for the next 125 years.”
“This plan is the result of a comprehensive, bottom-up assessment of Goodyear’s business, led by the Review Committee,” said Laurette T. Koellner, Independent Lead Director of Goodyear’s Board. “The full Board supports this plan and is confident it will deliver substantial and durable value creation for shareholders. We appreciate the constructive input of our shareholders throughout this process.”
On behalf of Elliott Investment Management, Senior Portfolio Manager Marc Steinberg and Portfolio Manager Austin Camporin said, “We look forward to continuing our dialogue with the company as it implements these initiatives and works to deliver the substantial upside value that we see for all Goodyear shareholders.”
The Review Committee consisted of five directors, including two new independent directors appointed in July 2023. Over the course of 16 weeks, the Review Committee engaged in deep analysis and deliberation with assistance from industry-leading financial advisors and consultants. The review culminated in a detailed and actionable plan to streamline the business, accelerate growth and enhance competitive positioning. The full Board will oversee the execution of the Goodyear Forward plan and remains committed to the ongoing assessment of value-enhancing opportunities.
The company says it will provide regular updates to shareholders on its progress executing the plan.