Goodyear Tire & Rubber Co. has reached an agreement with Sumitomo Rubber Industries Ltd. to dissolve the global alliance between the two companies.
Goodyear and SRI formed the global alliance in 1999. It primarily consists of four joint venture operating companies, one each in North America and Europe, and two in Japan (see below).
“While we have derived value from the alliance over the last 16 years, Goodyear is well positioned today to pursue our strategy on our own,” says Goodyear Chairman and CEO Richard Kramer. “This successful resolution increases our flexibility to grow profitably as we continue to focus on delivering strong performance and sustainable economic value.
“We are committed to a smooth and orderly transition that will be seamless to our customers and consumers in North America, Europe and Japan.”
The agreement, when closed, would resolve the pending arbitration filed in January 2014. The agreement enables both companies to avoid the cost and uncertainty of the arbitration process.
Here is an overview of the agreement.
1. North American joint venture. Sumitomo (currently 25% interest) will acquire Goodyear’s 75% interest in Goodyear Dunlop Tires North America Ltd., which primarily manufactures and sells Dunlop-brand tires in North America, including full ownership of the joint venture’s tire plant in Tonawanda, N.Y.
Goodyear will retain exclusive rights to sell Dunlop-brand tires in both the consumer and commercial replacement markets of the United States, Canada and Mexico, as well as to non-Japanese vehicle manufacturers in those countries.
In addition to assuming full ownership of the Dunlop motorcycle tire business in North America, Sumitomo will have rights to sell Dunlop-brand tires to Japanese vehicle manufacturers in the U.S., Canada and Mexico.
2. European joint venture. Goodyear (currently 75%interest) will acquire Sumitomo's 25% interest in Goodyear Dunlop Tires Europe B.V.
Goodyear will retain exclusive rights to sell Dunlop-brand tires in both replacement and original equipment consumer, commercial, motorcycle and racing markets in European countries.
Sumitomo will obtain exclusive rights to sell Dunlop-brand tires in certain countries that were previously non-exclusive under the global alliance, including Russia, Turkey and certain countries in Africa.
3. Japanese joint ventures. Goodyear (currently 25%interest) will acquire Sumitomo's 75% interest in Nippon Goodyear Ltd., which serves the replacement market in Japan with Goodyear-brand tires.
Sumitomo (currently 75% interest) will acquire Goodyear’s 25% interest in Dunlop Goodyear Tires Ltd., which serves the original equipment market in Japan with Goodyear- and Dunlop-brand tires.
Goodyear will regain exclusive rights to serve the Japanese replacement and original equipment markets with Goodyear-brand tires.
Sumitomo will continue to have exclusive rights to sell Dunlop-brand tires in the Japanese replacement and original equipment markets.
4. Purchasing and technology. Two other joint ventures involving joint purchasing and joint technology development also were dissolved. Goodyear held an 80% stake in SRI Global Purchasing Co. and a 51% stake in SRI Global Technology LLC.
Financial terms of the agreement
Under the terms of the agreement, Goodyear will pay Sumitomo $271 million upon closing of the transaction, which is expected in the fourth quarter of 2015. The transaction does not impact the company’s existing 2015 and 2016 financial targets or capital allocation plan. The outlay is included in the approximately $600 million designated for restructurings under the capital allocation plan. In addition, Goodyear will repay a pre-existing debt of approximately $55 million to Sumitomo within three years from the date of closing. As a result of the agreement, Goodyear will also sell its 3.4 million shares of Sumitomo common stock.
Goodyear expects the transaction to be accretive to its earnings beginning in the first quarter of 2016, related mainly to the elimination of minority interest in Goodyear Dunlop Tires Europe. Based on the company’s 2015 operating plan, the annual benefit to adjusted net income would be approximately $40 million to $50 million (15 to 18 cents per share).
The transaction is subject to customary closing conditions, including the receipt of regulatory approvals as well as Sumitomo's completion of a labor agreement with the United Steelworkers union for the Tonawanda plant.
Goodyear will discuss this agreement on an investor conference call at 9 a.m. EDT on Friday, June 5. Participating in the call will be Laura Thompson, executive vice president and chief financial officer, and Christina Zamarro, vice president of investor relations.
Investors, members of the media and other interested persons can access the conference call on the Web site or via telephone by calling either (800) 895-4790 or (785) 424-1071 before 8:55 a.m. EDT on June 5 and providing the Conference ID “Goodyear.” A taped replay will be available by calling (800) 723-6062. The replay also will remain available on the Web site.
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