Goodyear purchase of Cooper clears major hurdle

Goodyear has crossed one major hurdle in its bid to acquire Cooper Tire & Rubber Co.

China became the first country to grant antitrust approval to Goodyear's offer to purchase Cooper, announcing the ruling April 23 as part of a package of "undertakings" approved unconditionally by its antitrust agency.

Goodyear's $2.5 billion cash and stock deal to acquire Cooper — announced Feb. 22 in a joint statement from the tire makers — still faces regulatory approval in several countries, including the U.S. and in Europe.The approval from the Chinese government means the Cooper deal could close in the third quarter, according to James Picariello, equity research analyst at KeyBanc Capital Markets."I think that was the only major hurdle from an antitrust standpoint, because the Chinese government might want to stymie or withhold their approval," Mr. Picariello told Tire Business. "With China approving the deal before the U.S. and Europe, it's a good, positive sign for the deal to close."

Another positive sign, according to Mr. Picariello, is the Form 8K that Cooper filed with the U.S. Securities and Exchange Commission on April 20. In the filing, Cooper reported its projected revenue for the next five years: $3.07 billion in 2021; $3.13 billion in 2022; $3.26 billion in 2023; $3.37 billion in 2024; and $3.55 billion in 2025.

The filing was in direct response to several lawsuits filed by Cooper shareholders in both Delaware and New Jersey, in which the shareholders assert, among other claims, that the transaction "omits and/or misrepresents material information" regarding Cooper's and Goodyear's financial projections.

Cooper projects its earnings before interest, tax, depreciation and amortization (EBITA) to be $523 million this year; $596 million in 2022; $651 million in 2023; $745 million in 2024; and $775 million in 2025.

Mr. Picariello said the projections were made to counter the "ambulance-chaser strategy" that a handful of Cooper shareholders have litigiously employed in order to stop the deal.

"My (projected) numbers are above consensus, which were good," Mr. Picariello said, "and Cooper's 8K (numbers) were slightly above my indications.

"The fact they provided these (projections) in response to the suit indicates to me that they are ready to move ahead with the deal," Mr. Picariello said. "They are trying to get ahead and address the noise."

Goodyear and Cooper said the allegations in the stockholder actions are "without merit," according to a March 31 filing Goodyear made with the U.S. Securities and Exchange Commission.It is unclear when regulatory agencies from other countries might rule on the merger.

Goodyear declined to comment on receiving Chinese approval.

The Akron-based tire maker likely will address the deal April 30 when company executives host an investor call, soon after releasing Goodyear's 2021 first quarter financial results.

April 30 will be a big day for Cooper, too. Cooper shareholders will vote virtually on Goodyear's offer as part of a special shareholder meeting. Goodyear has offered to buy all outstanding shares of Cooper for $41.75 per share in cash plus 0.907 share of Goodyear stock.

The offer represents a 24% premium over the prevailing share price on Feb. 19, the last full day of trading before the offer was made public.

The regulatory approval from China is significant from another perspective: China was a key factor in the collapse of Apollo Tyre Ltd's bid to purchase Cooper in 2013.In August of that year, more than 5,000 workers at Cooper's joint-venture plant in Rongcheng, China, went on strike to protest the Apollo takeover. At the time, Cooper owned 65% of the venture with China's Chengshan Group.

According to reports, union leaders at the plant were trying to block the transaction from taking place, because they didn't believe Apollo could repay the debt it would take on to finance the acquisition, and in turn that could put the workers' jobs in jeopardy.

After the ensuing disputes and court battles, particularly regarding the Chinese JV, Cooper terminated its merger agreement in December 2013, a day before the merger pact's deadline for Apollo to terminate the agreement if the parties had not concluded the negotiated terms satisfactorily.

The Goodyear deal, however, is primed to close.

"We continue to view the (Goodyear-Cooper) deal as highly, mutually beneficial to shareholders on both sides," Mr. Picariello said.