Why Goodyear Stock Is Sharply Higher Today

What happened

Shares of Goodyear Tire & Rubber (NASDAQ:GT) were trading sharply higher on Monday after the company announced it will acquire rival Cooper Tire (NYSE:CTB) in a friendly cash-and-stock deal.

It’s no surprise that Cooper Tire’s stock soared on the news as Goodyear is acquiring Cooper at a 24% premium to Friday’s closing price. It’s somewhat unusual for an acquirer’s stock to surge in these situations, but auto investors clearly like the deal.

As of 1:45 p.m. EST, Goodyear’s stock was up about 18.8% from Friday’s closing price, and Cooper Tire’s was up about 29.8%.

So what

Here are the key points of the deal:

  1. Goodyear is paying about $2.8 billion for Cooper Tire, or $54.36 per share.
  2. Cooper Tire shareholders will receive a mix of cash and Goodyear stock: $41.75 in cash and 0.907 shares of Goodyear for each share of Cooper Tire. 

This feels like a good deal for both parties, not least because Goodyear and Cooper Tire have complementary brand portfolios. Goodyear has traditionally focused on passenger-vehicle tires, with a sizable business in tires sold to automakers for new vehicles. Cooper Tire, on the other hand, has strong high-margin offerings for light trucks and SUVs, and a substantial retail presence.

Simply put, Goodyear gets a good brand in market segments where it has traditionally been less strong, some added production capacity, and — importantly — an expanded presence in China, where Cooper’s business has been thriving.

Now what

Adding the businesses together on paper, we see a combined company with $17.5 billion in annual revenue, about $1 billion in operating income, and about $525 million in annual free cash flow.

If all goes well, investors can expect the deal to close in the second half of 2021. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

View more information: https://www.fool.com/investing/2021/02/22/why-goodyear-stock-is-sharply-higher-today/

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