Maytag Corp. shares jumped yesterday after rival Whirlpool Corp. unexpectedly unveiled a $17-a-share buyout bid to become Maytag's third suitor.
Despite a number of question marks that surround Whirlpool's $1.37 billion cash-and-stock proposal, investors bet that Maytag will draw an even higher bid: In New York Stock Exchange trading, Maytag shares surged $2.03, or 13 percent, to close at $17.48.
Whirlpool said that if it succeeds in acquiring cash-strapped Maytag, it could strengthen the smaller company's competitive position by introducing technological innovations and economies of scale.
The proposed combination "will provide Maytag shareholders with superior value," said Whirlpool Chairman and Chief Executive Officer Jeff Fettig, and it "fits Whirlpool's strategy and capabilities."
But it faces a number of uncertainties. For one thing, a number of observers doubt the Federal Trade Commission, which reviews proposed corporate mergers to make sure they don't damage marketplace competition, will sign off on a Whirlpool-Maytag combination. In sectors such as kitchen and laundry appliances, each company currently has a hefty share of the U.S. market; antitrust regulators might decide that as a combined company their position would be too dominant.
"We don't believe such a combination would be able to get support from [the FTC], due to the market share of the combined organization that could reach the 45 percent - 50 percent level in a number of very significant product categories," said FTN Midwest Securities Corp. analyst Eric Bosshard.
Whirlpool CEO Fettig sought to downplay such concerns yesterday in a conference call with Wall Street analysts and investors, contending that the U.S. market should be seen as part of a global marketplace, rather than a closed system. There are "virtually no barriers to entry" to the U.S. appliance market, he said.
Speculation on strategy
Some observers aren't convinced Whirlpool is really serious about buying Maytag. Instead, such speculation goes, Whirlpool may simply be trying to derail an ambitious Chinese rival's effort to acquire Maytag.
Whirlpool "is just throwing a railroad tie down" in front of a bid by Haier Group of China, contended Prudential Equity Group analyst Nicholas Heymann.
Heymann's reservations underscore the guessing game involved in the bidding contest now under way for Maytag.
In April, Maytag shares tumbled to as low as $9.21 - their lowest level in more than a decade - after the company reported discouraging quarterly results and offered a gloomy full-year forecast.
In May, with its shares still depressed, the company said it had agreed to be acquired by New York buyout group Ripplewood Holdings for $14 a share, or $1.13 billion. Maytag's board already has approved that proposed transaction, and stockholders are scheduled to vote on the $14 bid on Aug. 19. In the wake of that deal's announcement, some Maytag stockholders complained publicly that Ripplewood was getting the company at a lowball price.
Then in mid-June, Chinese appliance-maker Haier Group jumped into the game, by tentatively proposing to buy Maytag for $16 a share. A major maker of appliances sold to consumers in China, Haier has only a limited presence in the U.S. appliance market. Its bid, made with the backing of U.S. investment firms Bain & Co. and Blackstone, could provide the Chinese company with brands and a distribution system that would provide a real entry into the United States.
Unlike Ripplewood, however, Haier made its proposal without having a chance to review Maytag's books. It's now performing that chore, which can take two months to complete, and can't proceed with its tentative bid until the process is completed.
Under U.S. securities law, boards are obliged to weigh every buyout offer, wanted or unwanted, and to choose the bid the board thinks will provide the best deal for the company and its stockholders. Maytag is reviewing the bid, but for now is still recommending stockholders vote next month in favor of the lower but firm Ripplewood offer.
Haier's unsolicited bid for one of the most famous brands in America may face another hurdle: American lawmakers' growing concern about the sales of U.S. assets to Chinese companies.
Such Chinese concerns, increasingly flush with cash, are just beginning to buy U.S. companies, and the effort has stirred concerns in some quarters. Lenovo Group bought IBM's personal-computer business in a deal that closed in May. And China National Offshore Oil Co. is currently pursuing an unsolicited $18.5 billion bid for California-based oil producer Unocal.
The House recently held hearings on potentially blocking the Unocal deal on national security grounds. If that effort succeeds, it could portend difficulties for Haier's bid for Maytag.
There was speculation yesterday that Whirlpool might be hoping its bid can complicate matters further for Haier, so that Ripplewood will eventually prevail in the bidding fight for Maytag. That outcome would be preferable to Whirlpool, suggests Prudential's Heymann, because Maytag under Ripplewood ownership would be a less daunting competitor than Maytag would be as a Haier-owned company.
Maytag response tepid
Whirlpool's bid, like Haier's, is subject to an in-depth review of Maytag's finances. And Maytag officials' response to the latest bid was as tepid as it was for Haier. The board, the company said, will consider the proposal "in accordance with its duties."
In New York, bond-rater Standard & Poor's Corp. put Whirlpool's debt on CreditWatch with negative implications, noting that even though the proposed deal would be partially paid for with Whirlpool stock, "even a partially debt-financed acquisition of this size could weaken Whirlpool's credit protection measures."
In Big Board trading yesterday, Whirlpool shares rose $3.32, or 4.7 percent, to close at $73.71.
The Chicago Tribune is a Tribune Publishing newspaper. Dow Jones Newswires contributed to this article.
Bidding for Maytag
THE BOTTOM LINE: Appliance maker Whirlpool Corp. wants to acquire rival Maytag Corp. in a deal worth $1.37 billion.
WHAT WHIRLPOOL SAYS: Jeff M. Fettig, the company's chairman, president and chief executive officer, calls the offer the "best opportunity to address Maytag's needs" in what may become a bidding war for Maytag.
WHAT MAYTAG SAYS: The company released a statement saying that its directors will consider the Whirlpool bid but that they had not changed their recommendation for an earlier, $1.13 billion deal from an investment group.