Daring Marriage

A suitor for Firestone

Why should an aggressive, well-managed firm want to buy Firestone, the most troubled tire company in the land? Ask Borg-Warner (1977 sales of $2.03 billion), which last week announced a proposed merger that is really an $870 million takeover of the much larger tire and rubber maker ('77 sales: $4.4 billion). The advantages are clearer for Firestone and its unhappy stockholders than for Borg-Warner, which makes auto parts, air-conditioning gear, chemicals and plastics.

Firestone has lived this year with slumping profits, a falling stock price and bad publicity over alleged defects in its 500-series radial tires. Last week it signed a pact with the National Highway Traffic Safety Administration promising to recall and replace up to 7.5 million of the radials, which are no longer being manufactured. After tax write-offs, the company expects the recall to cost $135 million, or more than its $110 million profit last year.

On the other hand, Borg-Warner seems to be getting a bargain. In a complicated exchange of stock, it would pay about $15 a share for Firestone. That is some $2 above the market price before the offer but far less than last year's $24 high and well below Firestone's book value of about $25 a share, or $1.5 billion. Aside from collecting assets cheaply, Borg-Warner would be buying 1) protection from a possible unwelcome bidder for its own company, 2) a sizable paper loss from the 500-series recall that could be used to reduce future taxes and 3) Firestone's hoard of spare cash.

Firestone still, faces a Government fine, countless lawsuits over the 500-series tires, and the possibility that the bad publicity may deflate sales of its new, different 721-series tires. Borg-Warner seems prepared to accept these risks, but the deal may still not go through. Washington trustbusters could easily challenge a marriage that would be one of the largest in U.S. business history.

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