Goodyear investor calls for wholesale board changes

Elliott Investment Management L.P., which holds around 10 per cent of The Goodyear Rubber & Tire Company shares, has published an open letter sent to Goodyear’s board of directors expounding on its “deep conviction in the opportunity for Goodyear to improve after more than a decade of underperformance”. Not only are Elliotts calling for five changes to the board, but they have set up a website (acceleratinggt.com) detailing plans to overhaul the business. Shares jumped 18% at the time of publication in response to the news.

While the highly-publicised open letter to the board and the accompanying website could be interpreted as the prelude to some kind of takeover by a significant shareholder, Elliot’s letter states “the purpose of the materials is to outline the right path forward to create value at Goodyear and realize its full potential.”

(Source: Google Finance)

The letter continues: “Despite the Company’s strong brand, leading market share and favourable industry tailwinds, Goodyear’s stock has meaningfully and consistently underperformed. The Company’s poor stock performance is a direct result of its significant margin erosion, suboptimal go-to-market strategy, and unfocused brand strategy, which have collectively led to a loss of investor confidence, according to the letter.”

Elliotts suggests that Goodyear must enhance leadership and release value in its retail platform in order to right the ship. Specifically, that means “appoint five new highly qualified independent directors to the Board to improve governance, bring about a cultural change and help restore confidence among investors.”

On the subject of releasing value “trapped” in Goodyear’s retail platform, Elliots wrote “Explore ways to monetize Goodyear’s Company-owned store network, which Elliott believes is nearly worth Goodyear’s market capitalization given the multiples of auto aftermarket service businesses.”

And in order to execute on the first two points, Elliots is calling for the formation of ”an Operational Review Committee to develop an operational and margin improvement plan”. Elliott believes these steps will unlock “more than $21 per share in value for shareholders, an increase of 179% to its current share price.”