The preferred shares will cost $50 each, more than three times higher than the company's $14.57 open on Tuesday. After three years, in April of 2014, the preferred shares will convert into as many as 3.4 shares of regular stock.
The new shares will pay $2.94 per year in dividends. Goodyear's existing stock hasn't paid dividends since 2003. In addition to paying dividends, the preferred shareholders will be ahead of regular shareholders for payouts of Goodyear fails and liquidates within the next three years.
Based on those numbers, if Goodyear's shares fall over the next three years, the value of preferred shareholder's stock will fall at about the same rate as regular shares. So the value in the preferred shares will come from the dividends and priority ranking in case of liquidation.
If Goodyear's shares rise considerably, the preferred shares will have less value than the regular shares. For example, if an investor were to pay $1,000 for 69 shares of Goodyear's regular stock today, those shares would be worth $2,070 if Goodyear's regular shares were to climb to $30 per share by 2014.
But $1,000 would only buy 20 shares of preferred stock. If Goodyear's regular shares hit $30 by 2014, those preferred shares would convert into 55 regular shares worth about $1,650. Even after the dividends, that's a smaller appreciation than the regular shares would have.
Holders of the preferred shares can convert that stock into regular Goodyear shares at any time before the mandatory 2014 conversion, getting 2.75 shares of regular stock for each preferred share.
Goodyear spokesman Keith Price said investors will have to look over the company's prospectus and decided what value they see in having priority rights and regular dividend payments.
Proceeds from the offering will go to pay off $350 million in Goodyear corporate bonds. Those bonds carry a 10.5 percent interest rate.
(Source: http://www.cleveland.com/business/index.ssf/2011/03/goodyear_announces_prices_of_n.html)
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