MELBOURNE (Reuters Breakingviews) – Concise insights on global finance in the Covid-19 era.
PUMPED UP. Goodyear Tire & Rubber can put a positive spin on its plan to buy Cooper Tire & Rubber for $2.8 billion. Although the target secures a 24% uplift on shares already trading at a four-year high and keeps some possible upside with a 16% stake in the combined company, it’s the buyer burning rubber.
Some $165 million of expected synergies, taxed and capitalised, are worth considerably more than the premium, per Breakingviews calculations. It requires putting them on a lower multiple than the conventional 10 times to balance things out. Even then, Goodyear reckons the acquisition will yield additional value worth $450 million today from tax benefits. And there may be separate manufacturing savings to come.
Moreover, the implied return on investment from a deal that would nearly double Goodyear’s presence in China, assuming Cooper generates the operating profit analysts expect, is more than 14%. That should help put Goodyear on a roll. (By Jeffrey Goldfarb)
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