Despite relief over survival, Goodyear chief fumes at debt load
Last Saturday night a ``Save Goodyear'' party in Akron, Ohio, turned into a victory celebration when Sir James Goldsmith unexpectedly withdrew his strong bid for the company. No one was more pleased with the development than Goodyear chairman Robert E. Mercer, who says Sir James's acceptance of $618 million for his 11.5 percent stake has kept the company in good hands and on track as an industry leader.
``We were able to keep the chemical division, industrial products, engineering products, film and other operations - and we've still got a substantial business in addition to tires,'' Mr. Mercer told the Monitor in a telephone interview.
But if Mercer is relieved and happy, he is also still fuming about the fact that his company will be staggering under a $2 billion debt load for some time - and what he feels was a dirty deal from the start.
``If you have the ability to come in and destroy a company, what's the difference if you do it with bombs or if you do it inside with a financial threat,'' Mercer says. ``The company gets destroyed one way or another.
``It's terrifying to see the lives of so many people affected drastically and permanently from a sneak attack that's done under the guise of protecting or enhancing shareholder value.''
Many financial experts contend that corporate raiders serve a useful purpose in keeping corporate management on its toes keeping costs down and earnings high. Sir James, too, espouses the view that his role as a takeover artist is one of saving shareholders from poor management.
Isn't Goodyear's forced restructuring a good thing, since earnings will undoubtedly rise as money-losing or neutral assets are sold off?
``He hasn't helped Goodyear at all - in one way, or in any way,'' Mercer says. ``We had our broad-based approach to business for solid reasons. Now we've had to narrow that base.''
In buying Sir James's shares, Goodyear has also committed itself to a repurchase of an additional 40 million shares at $50 a share. That puts the debt load well above $2 billion.
Goodyear will sell its money-losing Celeron energy division as well as its profitable aerospace and wheel divisions. The sale of those assets should bring about $2 billion.
Mercer says Goodyear will save $230 million by cutting back on operations. Part of the saving ($60 million) will come from closing its Kelly-Springfield plants in Cumberland, Md., and Toronto and trimming $170 million from research and development, advertising and promotion, and overhead.
At corporate headquarters, 550 of 5,000 salaried employees will be cut and 130 hourly jobs eliminated. Including plant closings, about 3,200 employees will lose jobs.
``I don't think we're stronger at all,'' Mercer says. ``I think what we have is a lot of momentum going for us and a lot of people who are relieved and mad. We're going to have to start building the company back up again, but fortunately our leadership position in tires and some other products remains intact, which it would not have been if Goldsmith had taken over the company.''
While analysts are divided as to whether stockholders would have benefited more under Sir James or current management, they generally agree that in the long run the company is better off as it is.
``The only real difference is that Sir James would have been even more ruthless in cutting advertising, research and development, and corporate expenses,'' says Harry W. Millis, an analyst at McDonald & Co., a Cleveland brokerage. Under a Goldsmith management, ``the company would absolutely have mortgaged its future in an attempt to maximize short-term cash flow.''
Mr. Millis says that although drastic cuts are in the works, Mercer and his crew will ``be whittling compared to what Goldsmith would have done.'' He says it is clear that Goodyear ``will not be as strong a company as it would have been without the restructuring.'' Investments in such things as automated tire manufacturing that would have borne fruit in lower costs in 1988 or '89 won't happen for years now because of cutbacks.
What does Mercer think of corporate raiders now - should there be any sort of reform? ``I think the raiders should go through the same routine friendly mergers have to - a review by Justice [Department] and the FTC [Federal Trade Commission],'' he says.
Raiders are a ``clear and present danger to the industrial base of this country, and something has to be done to put these guys in line.... I'm trying to figure out which company has benefited by a raider.... I haven't found one yet.
``None of this makes sense to me, the only people who benefit are the people who are inside - raiders, the financial backers, and the arbitrageurs. The whole thing is wrong and does not help the shareholders.
``I don't see where they've done one darn thing that's constructive, that has added to the gross national product of this country and made us more competitive. I'm looking for that kind of evidence and frankly I have yet to find it.''