Whirlpool/Maytag Girds for Market Scrap: Newly formed giant would have to counter inroads made by rival Asian appliance makers

Whirlpool Corp. fought a tough battle to win Maytag Corp., finally persuading its home appliances rival that it was the right buyer by shelling out 50% more than its chief bidding competitor. But now the hard work really begins. First, Whirlpool has to convince U.S. antitrust regulators that buying Maytag with only minimal dispositions won’t harm competition. And for the longer pull, the combined firm, which will become the world’s largest producer of major appliances, must marshal its size and strength to counter the innovative Far East-based companies that have stolen a march on domestic players in the North American marketplace. Only a handful of survivors The two challenges are not separable. The major appliances industry – comprising mostly refrigerators, washers and dryers, dishwashers, freezers, and ranges – has been consolidating for decades to the point where only three major U.S. players will survive after Whirlpool and Maytag linkup. But all of the mergers and restructurings, which have gone about as far as they can go, haven’t helped the industry combat the Asian incursion. A Whirlpool-Maytag merger will help, says Brad Humphries, a Partner and consumer goods expert at Accenture, because “you need to have scale to compete.” But what’s more important, he says, is leveraging that scale through greater product innovation, reduced operating costs, and more efficient distribution. The principal Asian producers, he notes, are LG and Samsung of South Korea and Japan’s Matsushita Electric Industries Co., which turns out the Panasonic brand. They have hit the North America market, Humphries says, with innovative, high-quality, energy-efficient, more versatile products that have caught fire with women shoppers and appliance and home improvement big-box retailers. And they have reduced costs by assembling the products in Mexico with components sourced from other locales with cost advantages. Korean and Japanese firms “caught the North American companies not asleep but off guard,” he states. Speed is required if the U.S.-based survivors are to mount a strong counterattack, he says, and there’s a lot to shake up, including getting a better handle on customer insight. “They quickly have to rationalize the cost structures, and one of the ways is to use M&A to drive some scale and scope,” he says. “It’s bringing in better management with a market leadership outlook and putting the technology and innovation groups. How quickly can they move elements off shore? How quickly can they ramp up Mexican assembly? In essence, they are trying to replicate what the other companies have already pulled off and are succeeding in.” Besides the probable Whirlpool-Maytag amalgam, key domestic-based appliances competitors include the American arm of Sweden’s Electrolux SA and the major appliances group of General Electric Co. Electrolux has been a consolidator, buying several brands including Frigidaire from General Motors Corp. while Maytag itself has added Jenn-Air ranges, Amana refrigerators, and Hoover vacuum cleaners over the years. Meanwhile, diversified companies have exited the field, including GM, Emerson Electric Co., which sold Kitchen-Aid to Whirlpool, and Raytheon Co., which sold Amana to Maytag. Offer too good to refuse Whirlpool pulled the Maytag deal off by bidding $21 a share, or nearly $1.8 billion (before assumption of debt) to blow out the originally accepted $14-a-share offer of Ripplewood Partners. Whirlpool also will ante up $120 million if the deal fails because it can’t get a green light from regulators. Fred Lipman, an antitrust lawyer at Blank Rome in Philadelphia, says he thinks Whirlpool can get the deal through but questions whether the companies will have to give up too much and lose value. “If they have to sell off the washing machine division or some other product line, will they still achieve the savings they expect?” he says. (c) 2005 Mergers and Acquisitions Journal and SourceMedia, Inc. All Rights Reserved. http://www.majournal.com http://www.sourcemedia.com