Goodyear Tire stock jumps 20% as Elliott takes stake, pushes for board seats (update)

Joe Raedle/Getty Images News

Update 12:20pm: Adds Goodyear comment.

Goodyear Tire (NASDAQ:GT) soared 20% after activist investor Elliott Investment Management reported a stake and plans to seek five board seats, as well as sale of its company-owned store network.

Elliott said it has an economic interest of 10% in Goodyear and wants the company to explore ways to monetize its Goodyear company-owned store network, according to a statement on Thursday. The famed activist hedge fund also wants the company to start an operational review and look to improve its margin.

Elliott, run by Paul Singer, believes, that the Goodyear (GT) could unlock more than $21 a share in value, or a 179% increase in its share price, if it goes forward with the investor's suggestions.

"It is an unfortunate fact for Goodyear and its investors that over the past decade, owning Goodyear stock has been a disappointment," Elliot portfolio managers Marc Steinberg and Austin Camporin wrote in a letter to Goodyear's (GT) board. "We believe the Company's poor stock performance is a direct result of its significant margin erosion, suboptimal go-to-market strategy and unfocused brand strategy, which have collectively led to a loss of investor confidence."

Goodyear (GT) said it plans to meet with Elliott and discuss its views about the tiremaker.

"We value input from our shareholders and regularly engage with them," Goodyear (GT) said in a statement on Thursday. "We are reviewing Elliott's recommendations, and we intend to meet with them to discuss their views in more detail."

Elliott argues that Goodyear's (GT) company-owned store network is worth nearly Goodyear's market capitalization given the multiples of auto aftermarket service businesses. The company could use proceeds to pay down debt, improving its balance sheet and financial flexibility. We estimate that a sale of these stores would generate an increase of more than $4 per share in the company's stock price.

Elliott also believes that a comprehensive review of Goodyear's SG&A costs could drive at least 114 basis points of margin improvement, while a redesign of Goodyear's go-to-market and brand strategies could drive an incremental 271 basis points of operating margin expansion. Together, these initiatives could create more than $16 per share of value to Goodyear.

Goodyear (GT) reported Q1 results a week ago.

More on Goodyear Tire

• Goodyear Tire & Rubber is tipped by CFRA for share price breakout
• The Goodyear Tire Has Survived Many Bad Years
• Goodyear Tire: A Number Of Challenges To Consider

Comments

[ronald61239]

I don't expect any more to transpire based on the present offer than what has happened so far.

[dwaymer]

Somebody who is not in the tire business sends a letter and the stock is up 21%? People will just continue to seek out the lowest price tires they can. This is a short.

[Bill_Wallace]

@dwaymer wrong

[Arnold Hau5]

Good. This thing has been a POS forever

[Bill_Wallace]

Elliott, run by Paul Singer, believes, that the Goodyear (GT) could unlock more than $21 a share in value, or a 179% increase in its share price, if it goes forward with the investor's suggestions.

Got my attention! LONG low $14's

[C_Stewart]

Perhaps Elliott will have better luck than Sir James Goldsmith, the stock was at $42 a share back in 1986, seems like Goodyear hasn’t done much since…

[FredBerger]

Management is overpaid for below average performance

[Turkey Trot]

@FredBerger Almost all are.

[teebeesee]

@Turkey Trot

I agree. IMO, in the western business world, confidence seems to be often confused with competence...ergo inept, over-compensated management.

[matttrakker]

Got my underwater position bailed out. Thank you. Good bye.

[Bizzaro-Peter-Lynch]

@matttrakker same. Took my 14% gain and ran with it. Can’t wait for results to materialize in this market. Sell the news.

[Chris Lau]

@matttrakker $GT is Good(bye)year Tire.
Take profits and run. Strong sell.

[ronald61239]

It's about time someone lit a fire under Goodyear management. This sort of thing could not have happened if the Co. was not under valued.

[autofocus111]

@ronald61239 Tire fires are nasty.

>>>Tire fires are events that involve the combustion of large quantities of tires, usually waste tires, typically in locations where they are stored, dumped, or processed. They exist in two forms: as fast-burning events, leading to almost immediate loss of control, and as slow-burning pyrolysis which can continue for over a decade. They are noted for being difficult to extinguish. Such fires produce much smoke, which carries toxic chemicals from the breakdown of synthetic rubber compounds while burning.[1]

en.wikipedia.org/...

[ronald61239]

@autofocus111 ---I get your point. Could be.

[team Gabe]

selling calls hand over fist

[cr24]

Maybe they just need to make top quality tires again.

[113467]

Elliot management/ Paul Singer They will gut the company and walk away with millions while the people that work there will bear the burden of scum like this taking a stake in the company. Just ask the people at Cabelas what happened when the vulture capital company (Elliot management) took a stake in their company. Elliot walked away with millions while thousands of Cabela employees lost their jobs.

[value21]

@113467 He may not be exactly a knight in shining armor but he is not wrong when he says the stock has performed poorly for a long time.

[cpr1200r100]

@value21 suggesting Goodyear sell and lease back their company stores when cap rates are highest they have been in 20? Years is BS. 113467 is right
Singer will F up goodyear, leaving good year on the hook for increased overhead and only walking way with 60% of the cash that was achievable 2 years ago...by the same idea.

Hey.... let's sell the company stores/real estate and lease them back is less than impressive management decision. YOU deserve zero seats on the board with that "brilliant" idea Singer.

btw...what's your second trick to unlocking shareholder value?

[teebeesee]

@cpr1200r100

They say sell and lease back the stores to then reduce debt with the proceeds. That MO seems to fly in the face of the normal procedures activist investors follow... common seems to be sell and lease back then pay a massive dividend then walk away.