Read a case "Goodyear Restructuring" and answer the following questions

• 1. What did the market think of Goodyear’s diversification strategy before the takeover attempt by Sir James Goldsmith?

• 2. Using figures from the cases, how does Goodyear’s debt level in 1987 compare with Bridgestone and Michelin?

• 3. In early 1988, what percentage of Goodyear’s equity was held by Goodyear’s directors?

• 4. Consider Goodyear’s situation at the end of 1988. Would you recommend that Goodyear sell the All American pipeline? Provide a 1-2 paragraph explanation of your recommendation.

Discussion questions: You do not need to answer the following questions, but you should think about them in advance since we will be discussing them in class.

Did Goodyear take on too much debt in its effort to avoid being taken over?

How much did shareholders benefit from Goldsmith’s takeover attempt?

What course of action would you recommend to Mr. Barrett at the end of 1988. In particular, what do you think about the following possibilities.

a) undertake an equity issue

b) sell the All American pipeline

c) significantly cut capital expenditures

d) undertake an acquisition of a competitor

e) cut the dividend

• 1. Mr. Mercer has argued that the whole situation surrounding the attempted takeover of Goodyear is an indictment of the free enterprise system. In particular, he states that “if a company’s focus is not solely on the short term, it is vulnerable to dismemberment by speculators operating in a virtually unregulated risk-free environment.”

• a) Was Mr. Mercer’s pre-Goldsmith strategy a sound long-term strategy?

• b) Did shareholders benefit from the fact that Mr. Goldsmith’s takeover bid led to the restructuring of Goodyear? Please roughly quantify the dollar value of this benefit. What is the source of this benefit?

• 2. Do you think Goodyear took on too much debt in its response to Goldsmith’s takeover bid? What alternative responses to the takeover bid might have helped Goodyear avoid the difficult competitive situation it faces by the end of 1988?

• 3. You are a consultant called in by Mr. Barrett at the end of 1988 to assist him with a plan to lower the firm’s debt level. He would like you to report on the merits of each of the following possibilities. Which of these actions would you recommend Mr. Barrett pursue?

(a) undertake an equity issue

(b) sell the All American pipeline

1. (c) significantly cut capital expenditures
2. (d )undertake an acquisition of a competitor
3. (e)cut the dividend