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%.
Here are the key points of the deal:
- Goodyear is paying about $2.8 billion for Cooper Tire, or $54.36 per share.
- 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.
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.