Goodyear offers mandatory convertible preferred stock

On March 28, Goodyear Tire & Rubber announced a public offering of 8.7 million shares of its mandatory convertible preferred stock, with a price of US$50 a share. In addition, the underwriters have an option to purchase up to an additional 1.3 million shares of mandatory convertible preferred stock. The offering is expected to close on March 31, 2011, subject to customary closing conditions.

Goodyear intends to use the net proceeds from the offering to redeem $350 million in principal amount of its outstanding 10.5 per cent senior notes due May 15, 2016 at the redemption price of 110.5 per cent of the principal amount plus accrued and unpaid interest to the redemption date.  This redemption is pursuant to provisions of the notes that allow the company, at its option, to redeem up to 35 per cent of the original principal amount with proceeds from one or more equity offerings.  The company intends to use the remaining net proceeds from this offering for general corporate purposes, which may include the repayment of other outstanding indebtedness.

Unless converted earlier, shares of the mandatory convertible preferred stock will convert automatically on April 1, 2014 into between approximately 23.9 million and 29.9 million shares of Goodyear common stock (subject to customary anti-dilution adjustments and assuming that the underwriters do not exercise their option to purchase additional shares), depending on the market value of Goodyear common stock on that date.

The mandatory convertible preferred stock will pay, when and if declared by Goodyear’s Board of Directors, cumulative dividends at a rate of 5.875 per cent per annum on the initial liquidation preference of $50 per share (equivalent to $2.94 per year per share), payable quarterly in cash on January 1, April 1, July 1 and October 1 of each year.  The first dividend payment date will be July 1, 2011.  Net proceeds from this offering, after deducting underwriting discounts and commissions and offering expenses, are expected to be approximately $421 million.  Net proceeds are expected to be approximately $484 million if the underwriters exercise their option to purchase additional shares in full.

Goldman, Sachs & Co., J.P. Morgan Securities LLC, Citi and Credit Agricole Securities (USA) Inc. are acting as joint book-running managers for the offering. The offering is being made under an effective shelf registration statement filed with the US Securities and Exchange Commission.