From Akron Beacon Journal

The Goodyear Tire & Rubber Co. says the newly ratified United Steelworkers contract will save the Akron, OH, company up to $610 million through 2009, thanks in large part to the creation of an independent health-care trust for its unionized workers and retirees.

The Steelworkers, meanwhile, say their 86-day strike by about 13,000 workers in the United States prevented Goodyear from short-changing their members and retirees.

"It took a strike, but we achieved a fair and equitable contract that protects quality health care for active and retired members," said Ron Hoover, Steelworkers executive vice president, in a statement. "And by winning major capital investment expenditures, it secures our jobs for the future."

The contract looks like a great deal for Goodyear and will continue helping the company recover from its near-death experience in 2003 when it flirted with bankruptcy, industry analysts said.

With the strike over, Steelworkers will begin returning to work Tuesday. More than 2,000 other striking union members at four plants in Canada were voting Friday on a separate contract with the tire maker.

Goodyear's top executive said the new three-year contract, ratified late Thursday night by all 12 U.S.-based Steelworker locals, will help the company.

"Our goal was always to reach a fair agreement that improves our ability to compete and win with customers," said Robert Keegan, chairman and chief executive officer, in a statement.

The company's goals were to reduce high-cost manufacturing capacity, reduce legacy costs such as health care and improve productivity. In addition to allowing the closing of the Tyler, TX, tire plant in 2008, the contract includes the possibility of worker buyouts elsewhere.

Goodyear said it expects the contract to save the company $70 million in 2007, $240 million in 2008 and $300 million in 2009.

Shareholders also liked the new pact.

Shares of Goodyear on Friday rose 98 cents, or 4.9 percent, to a multiyear high of $20.99. Goodyear was the second-best performing company Friday in the Standard & Poor's 500 Index. When the strike began Oct. 5, the company's stock price was $14.24.

Overall, shares closed up 20.8 percent in 2006.

Standard & Poor's analyst Ephraim Levy expects the new Steelworkers contract will improve Goodyear's financial health and profitability.

Levy said the contract will give the company much-needed cost savings and helps buy more time to make the company more financially sound, he said Friday.

The closing of Goodyear's Tyler, TX, plant in 2008 will save the company about $50 million annually. Before it can close Tyler, though, Goodyear has to shutter a nonunion plant not covered under the Steelworkers' master contract.

Goodyear also will no longer be responsible for paying health-care benefits of its active Steelworkers and retirees once it pays $1 billion into what is called a Voluntary Employees' Beneficiary Association, or VEBA.

The independent trust, once it is set up and passes court approval, will be responsible for paying the Steelworkers' medical benefits.

Given the unstable outlook for Goodyear and the long-term challenges the company faces, Goodyear needed concessions from the Steelworkers, Levy said.

"The company got more out of it than the employees," he said. "I would say it was a favorable agreement for Goodyear."

But a financially stronger Goodyear should also result in better job security, he said.

Levy said he expects Goodyear revenue to be up about 3 percent in 2007, even as the company and other tire makers deal with high raw material costs and an expected decline in automobile manufacturing.

Goodyear should be able to improve revenue based on its product mix and anticipated price increases for its tires and other items, Levy said.

"They should be able to make the price increases stick," he said.

But Levy said he still has questions about Goodyear's long-term financial obligations, including pensions. He rates the stock as a "hold" and has a 12-month target price of $22.

"There's still room for them to get to a higher plateau and be self-sustaining," he said. "They're moving in that direction."

The savings from the contract are larger than expected, Kirk Ludtke an analyst with CRT Capital Group in Connecticut, told Bloomberg News.

Himanshu Patel, an analyst at JPMorgan Securities Inc., told Bloomberg that the contract savings were twice what he expected.

Industry analyst Shelly Lombard of financial firm Gimme Credit said in a report before the contract ratification that Goodyear needed to reduce capacity. Goodyear's overall business is improving, but the North American Tire division, which accounts for about half of Goodyear sales, is barely profitable, she said.

Also, with Goodyear stock at a 12-month high, the company might be in a position to have an equity offering to raise capital, she said. Equity financing is often done when a stock is at a high, so that the highest amount of capital can be raised with the least amount of shares.

Goodyear plans to further comment on the contract and related matters in a conference call in January. A date and time has not been announced.

Copyright (c) 2006, Akron Beacon Journal, Ohio