“Scale matters in an ever-evolving, more competitive market,” say Phillip Kane and Steve Rathbone, Senior Advisor and Managing Director with Stout, a global investment bank and advisory firm. “The synergies [between the two companies] are attainable. The equity markets are blessing this transaction based on price activity.”
While the market reacted favorably to the transaction, questions remain about how these two companies will integrate and the long-term benefits for both—and dealers—down the line. Tire Review spoke with financial and industry analysts to get their take on the advantages, the challenges and what’s ahead for these two Ohio tire giants.
Good Timing
The first advantage of the transaction was the timing, industry analysts say. With Cooper’s strong balance sheet, a strong equity bull market for M&A activity and low cost and high availability of debt financing, Goodyear acted at the right time, Rathbone and Kane say.
Cooper had fully exited its targeted private label portion of the business and built up new customer relationships and channels, such as Wal-Mart, says James Picariello, equity research analyst at KeyBanc Capital Markets. The tire industry is also grappling with a dynamic trade environment, leading tiremakers to increase domestic production capacity. Those with more North American-based manufacturing sources are slated to benefit.
“If you look at the average tariff rate (approx. 30%) and the widespread impact, almost 30% of the market is affected. As soon as those tariffs took hold in early January, I viewed Cooper as a potential takeout target,” Picariello says, nodding to Cooper’s strength in domestic manufacturing and its net cash balance sheet. “These two companies stand to benefit the most from the tariff environment. Together, as a combined force, they can really gain market share and pull-through price. And, I imagine Goodyear would much rather have Cooper in-house as opposed to strengthening a competitor.”
In addition, Rathbone and Kane say manufacturers have been consolidating, yet also adding capacity, in the last five to 10 years due to size complexity and the lack of available domestic manufacturing sources. With added scale and product offerings, Goodyear stands to remain competitive alongside industry peers.
While the market reacted favorably to the transaction, questions remain about how these two companies will integrate and the long-term benefits for both—and dealers—down the line. Tire Review spoke with financial and industry analysts to get their take on the advantages, the challenges and what’s ahead for these two Ohio tire giants.
Good Timing
The first advantage of the transaction was the timing, industry analysts say. With Cooper’s strong balance sheet, a strong equity bull market for M&A activity and low cost and high availability of debt financing, Goodyear acted at the right time, Rathbone and Kane say.
Cooper had fully exited its targeted private label portion of the business and built up new customer relationships and channels, such as Wal-Mart, says James Picariello, equity research analyst at KeyBanc Capital Markets. The tire industry is also grappling with a dynamic trade environment, leading tiremakers to increase domestic production capacity. Those with more North American-based manufacturing sources are slated to benefit.
“If you look at the average tariff rate (approx. 30%) and the widespread impact, almost 30% of the market is affected. As soon as those tariffs took hold in early January, I viewed Cooper as a potential takeout target,” Picariello says, nodding to Cooper’s strength in domestic manufacturing and its net cash balance sheet. “These two companies stand to benefit the most from the tariff environment. Together, as a combined force, they can really gain market share and pull-through price. And, I imagine Goodyear would much rather have Cooper in-house as opposed to strengthening a competitor.”
In addition, Rathbone and Kane say manufacturers have been consolidating, yet also adding capacity, in the last five to 10 years due to size complexity and the lack of available domestic manufacturing sources. With added scale and product offerings, Goodyear stands to remain competitive alongside industry peers.
When Goodyear announced plans to acquire Cooper Tire Feb. 22, both companies’ stocks went up as officials touted the synergies that would be achieved from the combined company. This was a good sign, according to market analysts, and they believe that over time all levels of the industry will benefit from the two joining forces.
