Goodyear Tire & Rubber Co. agreed to buy Cooper Tire & Rubber Co., a deal that seeks to combine the two biggest tire manufacturers based in the U.S. Goodyear said Monday it would pay about $2.8 billion in cash and stock for its smaller rival, including $41.75 a share in cash for Cooper’s shares, which rose about 30% to $56.89 in afternoon trading. Goodyear’s shares increased 20% to $16.72.

The acquisition would add scale for Goodyear, giving it annual revenue of roughly $17.5 billion, more than 50 factories and around 72,000 employees, according to an investor presentation. Cooper’s tire brands include its namesake line and Mastercraft. Meanwhile, the companies said they are eyeing $165 million of cost cuts annually within two years after the deal is complete.

Goodyear was the third-largest tire company globally by tire sales for 2019, according to industry publication Tire Business’s latest ranking. It trailed France’s Michelin, and Japan’s Bridgestone Corp., according to the ranking. Cooper was the 13th-biggest tire maker over that time frame, but the second largest in the U.S. after Goodyear. Both companies are based in Ohio.

Goodyear Chief Executive Richard Kramer said on a call with investors the proposed acquisition would lift the combined company’s sales volumes of replacement tires in the U.S. to about 64 million. In China, the deal would help Goodyear sell more new and replacement tires, with the latter market expected to grow quickly in the coming years, he added.

Many of the advantages of the deal “will accrue to our businesses in the U.S. and China, the two largest tire markets in the world,” he said. Executives said they aren’t initially looking for cost savings within their plants. Instead, the combined company would focus on duplicative selling and administrative expenses and finding savings tied to research and development, procurement, and logistics.

Goodyear and Cooper have both said the Covid-19 pandemic weighed on financial results last year as each temporarily shut down plants. Sales last year at Goodyear fell 16% to $12.3 billion and were off 8% at $2.5 billion for Cooper.

Todd Horwitz Chief Strategist BubbaTrading.com
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