In early October 1986, the Greater Akron community was on the verge of sweeping, gut-wrenching changes, with reverberations still being felt today.
It started quietly enough. Hardly anyone knew that Sir James Goldsmith and some partners had started buying shares of Goodyear Tire & Rubber Co. Lots of shares.
But Goodyear soon found out what was going on as interest in the stock increased and the price kept rising.
Those first stock purchases were the opening salvos in what became known as “the Goodyear War.” Goldsmith, a billionaire corporate raider and playboy with dual British and French citizenship, said he wanted to buy Goodyear and was willing to pay as much as $4.7 billion for the Akron icon.
Akron and Goodyear, of course, fought back.
“He wanted to buy it, break it up and sell it off. That’s where the money was,” recalled Robert Mercer, who was chairman and chief executive of Goodyear at the time. Mercer, now 87 and long retired, led the charge, along with a team of company executives and advisers hired to work against financier Goldsmith and his business partners.
Mercer and others remember well the events of 1986 and what they, the company and the community went through and what changed afterward.
“It was dramatic,” Mercer said.
Those were high-flying and often white- (and bare-) knuckle days in the world of big business. Borrowed money fueled hostile takeovers of American companies whose share prices were beaten down after the recession of the early 1980s. Raiders such as Carl Icahn and T. Boone Pickens made headlines as they bought and sold.
And there was the flamboyant, three-times married Goldsmith, who had eight children by four women, was knighted in 1976 and died in 1997 of a heart attack at age 64 in Spain.
By 1986, Goldsmith had made investment marks in taking over Diamond International — a successor to Akron-founded Diamond Match Co. — plus the Grand Union supermarket chain and forestry products company Crown Zellerbach.
Mercer referred to him as “Goldy” and said he “was damn good at what he did. ... The guy [was] a perfectly charming, bright guy.”
But this perfectly charming, bright guy also had what Mercer said was “an obscene business plan” that involved borrowing a lot of money to buy stock in a company, sell off pieces to repay the debt and eventually pocket a hefty profit.
As a plan, “it worked very well,” Mercer said. But people such as Goldsmith couldn’t care less about the companies they were buying or the communities built up around the companies, he said.
Now, 25 years later, Goodyear is narrowly focused, a global tire maker.
But at the time of the takeover attempt, Goodyear had 132,000 employees spread out among tires, an aerospace division, a wheel-making division, a chemicals division and more. In particular, it had bought an oil and gas operation called Celeron Corp. and announced in 1983 plans to build a $600 million pipeline running from California to Texas. The idea was to make money by transporting crude oil from the West to refineries on the Gulf Coast. By March 1986, Goodyear estimated the cost to build the pipeline would be about $1 billion, Goldsmith pointed out.
As Goldsmith learned more about the company whose shares he was buying, he wielded Celeron as a club in making his case that Goodyear had become mismanaged and was wasting huge sums of shareholder money.
“Perhaps Goodyear could afford to squander hundreds of millions of shareholders’ money,” Goldsmith testified late in his takeover attempt in a pivotal hearing before a congressional subcommittee. “What it could not afford was to cease concentrating on its real business, as [the late Chief Executive Paul] Litchfield had stated, [which] was ‘to build better tires, cheaper and sell them harder.’ ”
Goldsmith noted that Goodyear said the move into oil with Celeron was justified because it made the tire company 44 percent nonautomotive, up from 18 percent.
“That is how management lost its way,” Goldsmith said. “The approximately $2 billion spent in the oil and gas business should have been invested to build the most modern, state-of-the-art, frontier-breaking industrial infrastructure to produce better tires, cheaper, and to ensure that Goodyear’s operations could compete with anything, including imports, no matter their origin.”
Goodyear needed to concentrate on its core business “and not try to escape from it,” Goldsmith said.
Pipeline project defended
Mercer still defends the Celeron acquisition and pipeline project and said Goldsmith apparently knew nothing about Goodyear’s oil and gas business when the two met in New York City and for the first time sized each other up face to face.
“I said: You people don’t understand, Mr. Goldsmith, we are a petrochemical industry. We need oil and we need gas to build our products,” Mercer said. “We need an oil supply. We couldn’t trust the Middle East. Offshore California looked good to us. I said it’s integration, not diversification.”
Mercer said back then “I was presiding over a corporation that was beautifully run.”
A big part of Akron enlisted to fight alongside Goodyear.
When Goldsmith went to Washington, D.C., in mid-November to testify with others, including Mercer, before a congressional subcommittee, he had to walk through an unfriendly and loud mass of Goodyear workers and retirees.
“He realized these guys were gonna fight,” said Ron Fountain, who had been hired to help Goodyear in his capacity as president and chief operating officer of Cleveland communications firm Dix & Eaton.
Goldsmith got an earful from the congressional committee, too.
U.S. Rep. John Seiberling of Akron, grandson of a Goodyear co-founder, noted that Goldsmith in preceding weeks at one point said he didn’t know anything about the tire business, but subsequently said he knew more about tires than the people running Goodyear.
“My question is: Who the hell are you?” Seiberling said. The room exploded with applause, including Goldsmith.
Jim Mackinnon can be reached at 330-996-3544 or jmackinnon@thebeaconjournal.com.
