Denis Kelly remembers the story of Akron’s fight 25 years ago to fend off a hostile takeover a little bit differently than most local people do.
In 1986, Kelly was managing director of the investment firm Merrill Lynch’s mergers and acquisitions department.
Merrill Lynch was then a key member of a team of financial partners working with British-French investor Sir James Goldsmith that had identified Goodyear as a potential takeover target.
Merrill Lynch at the time was not known for mergers and acquisitions — the Goodyear bid was one of the first for the firm, he said.
“It was a very big deal,” Kelly said. “This was something that was approved by the board of directors of Merrill.”
Goldsmith looked for companies that he believed had lost their focus, said Kelly, now managing partner at Scura Partners Securities in New York City.
The idea was to find companies that had assets “that didn’t make any sense,” he said. “Really, what you are trying to identify was a mismatch.”
The plan was to buy those companies, sell off certain assets and focus on a core business, Kelly said.
Goodyear executives maintained that the company had interests in a variety of businesses over the decades — including chemicals, aerospace, wheels and engineered products such as belts and hoses.
In 1983, Goodyear wanted to expand its operations to include an oil pipeline that would deliver crude from the West Coast to the Gulf Coast in Texas.
Kelly said that move “was 100 percent of what got Goodyear on the radar screen.”
The pipeline was worth a lot of money and was easily saleable, he said.
Kelly’s history with Goldsmith started before the attempted Goodyear takeover. He said Goldsmith was not a raider.
“He was an operator of businesses. He bought businesses and operated them successfully,” Kelly said. “His intent was to buy Goodyear, sell off the pipeline and refocus management on making tires.”
Merrill Lynch had made a major financial commitment to Goldsmith’s Goodyear plan, Kelly said. “The offer that Sir James had on the table was fairly fully financed.”
Once Goodyear executives realized the company was a takeover target, they marshaled forces, using lessons learned from an exercise Goodyear held with investment bank Goldman Sachs earlier that year to explore what to do if the tire maker became a takeover target.
Goodyear Chairman and Chief Executive Robert Mercer learned of the real takeover in a phone call from a subordinate during a layover in Chicago as he flew back to Akron from a trip out West.
Calling reinforcements
Quickly, outsiders from prominent Wall Street firms were hired. Experts in finance and public relations went on the payroll to augment Goodyear’s internal expertise. In some cases, Goodyear hired firms to prevent Goldsmith’s team from using them. Mercer set up what was called a War Room off the famed Mahogany Row in the East Market Street headquarters for regular meetings. The efforts soon identified Goldsmith as the buyer.
Among the outsiders brought in was Ron Fountain. He was just months into a new job as president and chief operating officer at Cleveland communications firm Dix & Eaton Inc. after working as a top executive at truck maker White Consolidated Industries.
“We were supposed to handle local media relations,” said Fountain, now managing partner of Capital Acceleration Partners in Cleveland. Fountain was part of the War Room strategy team; members typically worked 20 hours a day, slept three or four hours at a nearby hotel and then went back to work, he said.
Fountain remembered Goodyear board members in an early meeting saying they wanted to find ways to discredit Goldsmith.
“I said, how are you going to discredit this guy?” Fountain said.
Finding leverage
It was publicly known that Goldsmith was married and had a mistress and took both of them on vacation at the same time, albeit with the women staying in separate residences, Fountain told them. “They [Goodyear board members] were stunned.”
As the Goodyear teams planned, the public relations people developed a strategic set of initiatives that Fountain said he didn’t think Goldsmith had anticipated.
That included pulling together what Fountain said he believed was the largest teleconference call of its time in the United States, involving mayors and public officials from every location where Goodyear had a presence in the country.
“The idea was to raise awareness the company would not be victimized,” Fountain said. They pushed the idea that Goldsmith had a history of destroying employers, a point he vigorously disputed.
“Of course, it was a spin fight,” Fountain said. Pushing emotions was among the goals.
The public relations effort also sought people who “could pull at the emotional strings,” Fountain said. Those included Goodyear retirees and older people whose pensions might be at risk, he said.
Some of those people went to Washington, D.C., to be in the room during a congressional hearing on takeovers, where Goldsmith and Mercer both testified and answered questions.
A couple of days later, Goldsmith accepted a Goodyear offer to buy back his shares for a $94 million profit.
With that, the Goodyear War ended some 10 weeks after it started.
“If you set out with something, you like to see it completed,” said former Goldsmith adviser Kelly. “In that sense, it [the takeover] was unsuccessful. The management and the board thwarted an attempted takeover of their company. That wasn’t the transaction that was contemplated.”
Profound changes
While a company is owned by shareholders, important stakeholders include employees and the community, Kelly said. “They didn’t want this [takeover] to happen.”
If the takeover had succeeded, “Merrill stood to make a lot of money,” Kelly said. “It was a nice payday but it was not what we set up to do.”
With the end came a profound change in the tire maker.
Rubber industry analyst Saul Ludwig remembers making a presentation in the 1980s to Goodyear’s top management, arguing that the Celeron Corp. oil and gas operation was a bad deal for Goodyear. The executives liked the presentation but still did the deal, Ludwig said.
“Analysts aren’t always right,” he said. But in this case, hindsight shows he was, Ludwig said.
He still gives Mercer high marks for leadership.
To pay the cost of the attempted takeover, Goodyear had to sell off much of what Goldsmith had identified as expendable.
“We busted up the company the way [Goldsmith] wanted to,” Mercer said. “He wanted to get rid of 40 to 45 percent of our company.”
Goodyear sold its aerospace division, its wheel-making division and eventually Celeron. And in succeeding years, the company has continued to shed what it calls noncore assets. Goodyear now has about half of the number of employees around the world that it had in 1986.
Joe Gingo, who worked at Goodyear for 40 years, had just been promoted to vice president of aviation tires at Goodyear’s aerospace division in the summer of 1986. He was 42 at the time. After the Goldsmith turmoil, Goodyear’s top leaders asked him to stay in the aerospace division to help provide continuity during the sale. Once the sale was completed to Loral Corp., Gingo returned to Goodyear, where he eventually retired before taking over Fairlawn polymer firm A. Schulman Inc.
Loss for community
Gingo said Goodyear eventually broke up its divisions much more humanely than if Goldsmith or another outsider had done it.
He said Mercer’s top priority was being cognizant of the many years of service employees had.
The Goodyear that remained post-Goldsmith became less involved in community activities, Gingo said.
“In the end, there were less job opportunities,” Gingo said.
Most divisions that Goodyear spun off do not have headquarters here, meaning lots of good-paying management jobs are elsewhere, Gingo said.
“This is all in the context of a changing world,” Gingo said.
Jim Mackinnon can be reached at 330-996-3544 or jmackinnon@thebeaconjournal.com.
