Whirlpool likely to win Maytag bid
It first it started out as contrast between emerging Chinese appliance giant Haier and US appliance giant Whirlpool. Then it became a fight between equity fund Ripplewood and Whirlpool. The object is Maytag, the venerable US home appliance company with great brand recognition but declining sales. Now, Maytag's board is signaling that it may accept the $1.9 billion Whirlpool bid.
Maytag's demise is credited generally to two factors. One is the inflated price of steel. Second, is the company's resistance of offshoring manufacturing. Maytag has made a resolve to keep most of its job in the US. Whirlpool, for example, has been much more aggressive about outsourcing, especially to Mexico.
The deal, if it happens, will make Whirlpool the #1 appliance maker in the world, pushing it past Sweden's Electrolux. The merged company would own many of the top brand names in appliances: Amana, KitchenAid, Magic Chef, Hoover and Jenn-Air, in addition of Maytag and Whirlpool. It would end up with an overwhelming (near monopoly ) share in some segments in the US: 81% for gas dryers, 74% for electric dryers, and 72% for washing machines. That is certain to set up antitrust
On the other hand, Whirlpool will argue to regulators that the combined company has only a 30% share of all appliances in the US; others calculate it at 50%. As usual, it's all in how you define the segments.
Whirlpool will also argue that it is losing world market share and faces the prospect of a flood of new competition from Asia. The aforementioned Haier is growing fast, and Korea's Samsung and LG Group are making big strides internationally. Other competitors include Germany's Bosch, Electrolux (which owns Frigidaire in the US), and General Electric. Kenmore, the second-biggest appliance brand in the US after Whirlpool, is the house brand at the Sears retail chain, which resells appliances originally made by one of the other big manufacturers (including Whirlpool and Maytag).
Whirlpool will further argue that it is facing an increasingly tight oligonomy that stands between it and the consumer. 65% of all appliances in the US are sold by four retail chains: Sears, Best Buys, Loews, and Home Depot.
Finally, Whirlpool has managed to get its top 20 retail customers to endorse the deal, indicating at least that they do not find the move anti-competitive. The thinking is that the new company will not be able to raise prices significantly, no matter how big.
That Whirlpool contends with an equity group at the last is part of an increasing pattern we've discussed before. A Bloomberg article on the deal ("Whirlpool Sweetens Offer for Maytag to $1.6 Billion, 8/8/05), gets at the nub of the contest between equity firms and in-industry bidders.
This merger makes a ton of sense because together these two companies purchase a much larger amount of steel, and buying steel has been their biggest cost,'' said Memphis, Tennessee- based Morgan Keegan Inc. analyst Laura Champine, who has an ``outperform'' rating on Whirlpool. `"Maytag is worth much more to Whirlpool than it ever could be to Ripplewood. Ripplewood isn't in the appliance business. They really don't need Maytag's plants.''
