Shares of Cooper Tire & Rubber Co. shot up by 28% in US late morning trading as the tire company agreed to be snapped up by peer Goodyear Tire & Rubber Co. in a transaction valued at $2.8 billion. Shares of Goodyear jumped 18% and were trading at $16.42.
According to the terms of the transaction, Cooper Tire (CTB) shareholders will receive $41.75 per share in cash with a fixed exchange ratio of 0.907 shares of Goodyear share for each Cooper common stock. As part of the deal, Cooper shareholders will receive implied a cash and stock consideration of $54.36 per share, based on Goodyear’s closing share price on Feb. 19.
Following the transaction, Goodyear (GT) shareholders will own around 84% of the combined company while Cooper shareholders will hold the remainder. The combined company is expected to have $17.5 billion in proforma FY19 sales.
Cooper’s CEO Brad Hughes said, “This transaction marks the start of a new chapter for Cooper, which we are entering from a position of strength. We believe that it represents an attractive opportunity to maximize value for our shareholders, who will receive a meaningful premium as well as the opportunity to participate in the upside of the combined company.”
The acquisition of Cooper is expected to expand Goodyear’s product portfolio by combining two portfolios of complementary brands. The transaction is also expected to create a “stronger U.S.-based manufacturer with increased presence in distribution and retail channels while combining both companies’ strengths in the highly profitable light truck and SUV product segments.”
Separately, CTB announced its 4Q and FY20 results. The company reported 4Q diluted earnings per share of $0.75, falling short of analysts’ estimates of $0.92. Revenues came in at $728 million, a decline of 2.9% year-on-year, which missed consensus estimates of $732.7 million. (See Cooper Tire & Rubber Co stock analysis on TipRanks)
In January, KeyBanc analyst James Picariello raised CTB’s price target from $48 to $50 (9.5% downside potential) and reiterated a Buy rating. Picariello argued that CTB had the “best-positioned upside” in response to tire tariffs, both from a pricing standpoint and a competitive gain in shares.