Goodyear/Titan – Update

In the aftermath of yesterday’s not-too-surprising announcement that Goodyear will sell its agricultural tyre operations to Titan International, more details have come to light, reports Tire Review.

Goodyear agreed to sell the assets of its agricultural group, including its farm tyre plant in Freeport, Illinois, to Titan for approximately $100 million. The deal also gives Titan the right to produce and market agricultural tyres under the Goodyear brand name. However, under Goodyear’s current master contract with the United Steelworkers of America (USWA), any facility sale is contingent on the union and the prospective new owner reaching agreement on a new contract for the plant in question.

Because of that “successorship” provision in Goodyear’s master contract, the planned sale may not progress as smoothly as either party would like, based on comments by the USWA. According to the US magazine the union has had a difficult relationship with Titan dating back to 1998 when workers at Titan’s Des Moines, Iowa, and Natchez, Missouri, plants began what turned into a highly acrimonious 40-month strike.

The USWA released a statement yesterday that stated the union was “far from optimistic that the necessary agreement will be reached to allow the sale to be finalized.”

“Based on our preliminary discussions and on Titan’s long history of adversarial labour relations and hostility to the USWA, it doesn’t appear that Titan is interested in meaningful negotiations with a goal of reaching a contract offer acceptable to our members in Freeport,” said Steve Vanderheyden, president of USWA Local 745 in Freeport.

A Goodyear spokesperson told the Freeport Journal-Standard that the tyre manufacturer would help Titan “become familiar with our agreement with the Steelworkers and to help with the relationship between them.” At the same time, if a deal between Titan and the USWA is not reached, the sale will fall through, a prospect Goodyear does not relish.

Mr Vanderheyden told the Journal-Standard that the USWA wants a deal similar to Goodyear’s current master contract. “This contract is now the industry standard,” Mr Vanderheyden was quoted as saying. “The current contract is the template and if we can’t get something very similar, the union will reject a sale.”

Mr Vanderheyden said he hopes the negotiations are positive and progress quickly, but no meetings have been scheduled as yet. He also recognises that the usual contract negotiation dynamics will be absent from any talks with Titan. “This is an unusual situation,” Vanderheyden told the newspaper. “There is no (pressing) contract expiration to drive the discussions, but for obvious business reasons, the sale can’t be held up for too long.”

Formerly a Kelly-Springfield plant, Goodyear’s Freeport facility employs some 800 hourly workers.

Goodyear has produced and sold farm tyres for a century, but is facing a debt load approaching $6 billion. The agricultural group posted sales of around $200 million, according to analysts, but lost some $25 million in each of the last few years, according to a Deutsche Bank analyst.

The sale won’t do much to reduce overall corporate debt, and financial analysts and industry observers still feel Goodyear will have to shed other parts of its global operations. Last year, Goodyear took its chemical division off the market after failing to find a suitable buyer. One major drawback to any deal for the chemical group is the fact that Goodyear’s tire operations are its chemical division’s single largest customer.

Analysts also feel Goodyear may be looking to sell its engineered products group, which produces vehicle and industrial belts, hoses and conveyor systems.

The Freeport Journal-Standard reported that city mayor Jim Gitz believed the sale would help “ensure the future viability of the Freeport plant.”

The major key to the deal is Titan’s ability to sell the Goodyear brand. Titan said it would position the Goodyear brand as its premium offering, and that it would phase out what remained of the Kelly agricultural brand. Under the licensing deal, Titan would pay royalties to Goodyear on every Goodyear branded tyre sold. Mr Taylor said that to facilitate to deal, Titan’s bankers have agreed to fund the deal, and that Titan “plans to raise $125 million in long-term debt or complete another convertible bond offer in the public market to reduce the senior debt.