Goodyear Tire & Rubber Co. (GT) announced the closing of its public offering of mandatorily convertible preferred stock, which commenced on March 28, 2011. In addition to the 8.7 million shares offered, the underwriters also exercised their option to purchase 1.3 million shares of the mandatorily convertible preferred stock. With this exercise of the underwriters’ option, 10 million shares were issued at closing at a price of $50 per share.
The net proceeds from the offering totaled $484 million, after deducting underwriting discounts, commissions and expenses. The company plans to use these funds for redeeming its senior notes maturing on May 15, 2016. The principal amount is $350 million and coupon rate is 10.500%, being redeemed at a price of 110.500% of the principal amount along with accrued and unpaid interest until the redemption date.
This redemption is in line with the proviso that allows the company to exercise its option, to redeem up to 35 percent of the original principal amount with proceeds from one or more equity offerings. The rest of the proceeds can be used for general purposes or repayment of other debts of the company.
The company made a public offering of $435 million of mandatorily convertible preferred stock consisting of 8.7 million shares at an average price of $50. In addition to this, the company has also given an option to the underwriters to purchase an additional 1.3 million shares.
The underwriters and book running lead managers to the offer are Goldman Sachs Group Inc. (GS), JP Morgan Securities, a unit of JP Morgan Chase & Co. (JPM), Citigroup Inc. (C) and Credit Agricole Securities CB.
Preferred stock typically pays a specified dividend, enjoys a preference over common stock if corporate assets are liquidated in a bankruptcy and does not offer voting rights. However, as the preferred shares of Goodyear mature, they will be automatically converted into common stock by April 1, 2014.
The dividend, if declared by the Board will pay cumulative dividends at a rate of 5.875% per annum on $50 per share, equivalent to $2.94 per share, per year. The dividend will be paid in cash every quarter on January 1, April 1, July 1 and October 1 of each year. The first dividend payment date will be July 1, 2011.
According to Standard & Poor’s Ratings Services, this public offering will not influence Goodyear’s corporate credit rating, which has a BB rating – currently with a stable outlook.
We currently have a Zacks #3 Rank (short-term Hold recommendation) on the stock.
Ohio-based Goodyear Tire and Rubber is one of the world’s largest tire companies. Goodyear has marketing operations in almost every country around the world. The company sells its products under the Goodyear, Kelly, and Dunlop brands. The company manufactures tires, engineered rubber products and chemicals in more than 90 facilities worldwide.
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