Hefty Sell Offs May Help Fix Goodyear's Flat

Goodyear Chairman Tom H. Barrett won't have a very cheery report for shareholders on Apr. 8, when he stands before them at the company's annual meeting. Suffering its first loss in half a century in 1990, Goodyear Tire & Rubber Co. slashed the dividend in February. Barrett has also chopped staff by the thousands and shaken up his management team.

Barrett isn't done yet. Now, he's preparing to auction off businesses that Goodyear held on to even during its bitter 1986 fight with Sir James Goldsmith. The reason: to slice the monstrous debt taken on to repel the raider.

The company won't comment on possible asset sales, but outsiders who do business with Goodyear say it has talked with investment bankers about some nontire manufacturing units. "They're going to want to raise at least $500 million," says one.

Nobody is holding a gun to Goodyear's head for that kind of money--yet. The company cut the dividend from $1.80 to 40~ a share, saving $80 million a year. And it's limiting capital expenditures (chart), so its cash flow from operations this year should be sufficient to handle basic needs.

'BIG SMORGASBORD.' That cash, though, won't stretch far enough to pay off much of Goodyear's $3.6 billion in debt--63.3% of capitalization (chart). That's a sore spot with Goodyear executives, who are preparing to sit down with bankers later this month. The topic: an extension of $2.24 billion in revolving credit lines that support the company's short-term borrowings. The current lines run until late 1992, and banks may well renew irrespective of any asset sales. Still, notes one lender, "they have a big chunk of debt. It's out of proportion to the cash flow. You've got to do something about that in a rather short period."

Hence the possibility of asset sales. There's only one prospect that stands out: the General Products Group. Although dwarfed by the company's tire operation, General Products rings up $2 billion in annual sales of everything from auto parts to supermarket film wrap. And lately, it has outperformed the tire business. Last year, despite an earnings drop, it rang up $ 194 million in operating profits.

Some General Products businesses wouldn't draw many buyers. But, notes Saul H. Ludwig, an analyst at Cleveland's Roulston & Co., "you've got a big smorgasbord." One item on the menu: polyester resin for soft-drink bottles, a profitable, high-growth business.

There's another asset Goodyear would dearly love to dump but can't: its $1.7 billion oil pipeline running from California to Texas. Built to move offshore oil--which isn't being pumped at the moment--it's mostly idle, draining away $100 million a year after taxes.

Meanwhile, the bloodbath in the world tire industry continues. Brutal competition helped lead to Goodyear's loss in 1990 of $38.3 million (including $73.1 million, after taxes, in special charges), on revenues of $11.5 billion. And Goodyear will report a further operating deficit in the first quarter. UBS Securities Inc. analyst Jean-Claude Gruet pegs it at $18 million.

In this grim environment, Barrett has been chopping overhead--6,700 salaried jobs since January, 1989. In mid-March, he also shook up management, eliminating the world tire unit created less than three years earlier and driving its hard-nosed chief, Executive Vice-President Jacques R. Sardas, into retirement. Hoyt Wells, who had run the General Products business, took the president's title. Industry rumors are rife that Barrett himself is in the hot seat. There's no hard evidence of that. But it's no secret that Goodyear needs more shaping up. And that means slimming down.

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