Goodyear, Sumitomo Ink Deal
Goodyear Tire & Rubber Co. and Sumitomo Rubber Industries, the second largest tire maker in Japan, said Wednesday they're combining their worldwide operations.
The new global alliance will generate $15 billion in sales, making Goodyear (GT) the world's largest tiremaker and catapulting it past France's Michelin and Japan's Bridgestone.
Goodyear announced separately that in response to the economic crises in Asia and Latin America and to inefficiencies in its North American operations, it is laying off 2,500 to 2,800 workers and cutting back operations in an attempt to reduce expenses by $100 million to $150 million a year.
Goodyear's 70-year-old Gadsden plant in Alabama, one of its most inefficient, will end tire manufacturing by the end of 1999. The plant will continue to mix rubber for other manufacturing plants, but the number of jobs that will remain has yet to be decided. Sumitomo also has a plant in Alabama at Huntsville.
The move is also expected to be a catalyst for further consolidation in the $75 billion-a-year rubber industry.
Goodyear and Sumitomo Rubber will form four joint venture operating companies, one in North America, one in Europe and two in Japan, and two "synergy-focused" support ventures in the United States.
Goodyear will have a 75 percent stake in the joint ventures in North America and Europe, and 25 percent by Sumitomo Rubber. In Japan, Sumitomo will own 75 percent of the two joint ventures and Goodyear the remainder. Goodyear will also pay Sumitomo Rubber $963 million in cash.
Goodyear said the deal will be "immediately accretive" to its earnings per share, and that it expects cost improvement and job cuts to add a combined $300 million to -$360 million to the operating profits of the joint ventures during the next three years.
The two companies plan to sign the joint agreements in May, but will need government regulatory approval in the United States and the European Union. Goodyear said its consolidated annual sales will jump 20 percent, or $2.5 billion.