Goodyear Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Question 1

In order to avoid the takeover, Goodyear took too much debt. Taking too much debt caused several problems for Goodyear. Goodyear had to sell most of its non-core operations like Aerospace and Oil and Gas businesses, and it also had to cut the employment in its main Headquarters. The total debt of Goodyear increased to $3.6 billion in 1987 from $2.8 billion and $1.1 billion in 1986 and 1985 respectively.

However, due to the increased level of debt, it had to reduce the R&D, capital and advertisement expenditure, due to which total expenditure dropped to $666 million in 1987 from $1131 million and $1623 million in 1986 and 1985 respectively.It also had to reduce its salaried employees and reduce several layers in the management hierarchy and divided its activities in two worldwide divisions of tires and general products however;it had two divisions only for tires before restructuring.

In a highly competitive environment, the high level of debt and increased hurdle rate left Goodyear with several problems. It became hard for Goodyear to invest in several projects, and it had to choose and only invest in projects which were necessary.

Other competitors like Michelin and Bridges tone made several investments to gain more share in North America; one of which includes the takeover of Firestone by Bridges tone. Also it also announced to spend over $1.5 billion to improve and expand its operations in North America and to over take Goodyear and Michelin as the number 1 tire producer in the world.

The high level of debt also increased the credit ratings from A to BBB, which made it hard for Goodyear to obtain more debt to invest even in the events where investment is necessary.

Question 2

The takeover attempt by Goldsmith benefited the shareholders, as the focus of Goodyear returned to its core business and it divested its non-core business including Celeron Corp, which it acquired recently, Aerospace unit and also ending its Formula One European racing team. When the diversification policy was first implemented by Goodyear the shareholders did not give good response to it and the share price of Goodyear reduced and it did not show much growth in years before the takeover attempt.

After restructuring the company, the reported results were very strong with the revenue rising by 9% and the income doubled with EPS showing great improvement rising from $1.16 in 1986 to $12.73 in 1987.The stock price of Goodyear reached the record level of $76 per share before the stock market crash however, its till traded at $60 at the end of the year 1987.

A company with different businesses that can create value is always an acquisition target for the investors.Most of the time, new investors invest for the favorable return, and they do not have much expertise of the business that they acquire, which often results in bad performance by the company and underestimating the core values of the business.

Question 3

The situation started to melt down in 1988 with the earnings in the quarter compared to the last year’s 3^rd quarter reducing by almost 50%. Along with this the share price also reduced, while other companies’ stock price increased in the period.

Mr. Barret has a tough job at hand, with companies like Bridges tone and Michelin almost catching up the difference created by Goodyear over the years.Barret would have to concentrate on the core business, and he should sell the All American Pipeline to lower the level of debt and to get a better credit ratings from the Debt providers, so that the company can invest in the R&D section and other required expenditure to keep the business growing and to keep the competitive advantage over the competitors.Investing in the Capital expenditure when the production compared to demand can be fulfilled by already owned plants would not be feasible option, how ever investing to gain the market share in other regions like Asia Pacific should be focused.Goodyear Casem Solution

R&D should be especially focused on because of the changing technologies which can affect the company, staying behind the competitors in new technology has the ability to cause severe damage to the company. However, another option should be to acquire small companies in other regions to enter the new markets and to make new long term relations with the car companies and work together................

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