Maytag proxy statement outlines merger bid

Maytag proxy statement outlines merger bid
Date July 21, 2005
Section(s) Local News


The proxy statement being sent to Maytag shareholders this week in advance of their August vote on whether to support a board-of-directors-backed buyout by the Ripplewood-led investment team shows a company clearly struggling over the past few years as it attempted to find its place in the globalized home appliance industry.

Maytag shareholders will vote on the merger plan with Triton Acquisition Holding Co., at a special meeting set for 10:30 a.m. Aug. 19 at the Sodexo DMACC Conference Center in Newton. Triton, a Delaware corporation, was created as a result of the buyout effort by the private equity firms Ripplewood Holdings, Goldman Sachs & Co., J. Rothschild Group and RHJ International.

A majority vote in favor of the merger must be secured for the buyout to go forward.

On May 19, Triton offered Maytag $14 a share in cash for each of the 79 million outstanding shares in a deal valued at $1.13 billion, including the assumption of about $975 million in debt.

Unsolicited bidding for the Newton-based corporation soon began, first by a consortium led by Haier America and two private American investments firms, Blackstone Capital and Bain Capital Partners that contemplated a $16 per share acquisition valued at $1.28 billion. Haier never offered a final bid for the company and officially dropped intentions of acquiring the American manufacturing icon, known for decades by Americans through its “Old Lonely” advertisement campaigns, late Tuesday. Chinese companies, like Haier, China’s largest manufacturer of appliances, have been attempting in recent years to gain access to North America and world markets through acquisitions of established U.S. companies.

Just days before Haier’s decision to withdraw from consideration for a Maytag acquisition, Whirlpool, America’s largest home appliance-based manufacturer, upped the bid for Maytag with a $17-per-share cash and stock offer valued at $2.3 billion. Whirlpool, in a letter to Maytag dated last Sunday, said the merger of the two American-based companies would benefit both in the global appliance industry. Whirlpool said it is ready to do due diligence and present a firm offer for Maytag prior to the scheduled shareholder meeting on the Ripplewood-led offer. It is uncertain how Haier’s decision to drop Maytag acquisition efforts may impact Whirlpool’s on-going considerations.

Whirlpool reported second quarter results today that showed net earnings of $96 million compared to $106 million in the same period the year before. The decline was driven by significantly higher material and oil-related costs, it said.

Net sales of $3.6 billion were a second quarter record and increased 9 percent from last year.

The company’s second quarter results reflected approximately $180 million of higher material and oil-related costs, as well as unfavorable currency translations and higher restructuring expenses compared to the quarter a year ago.

For the first half of 2005, Whirlpool has record sales of $6.8 billion, an 8 percent increase from the year before.

Commenting on the bid, Whirlpool CEO Jeff Fettig said, “We believe that our proposal is both financially and strategically compelling. The combination would deliver significant value to both Maytag and Whirlpool shareholders and lead to substantial efficiencies with direct benefits to consumers and trade customers.”

Whirlpool is the world’s leading manufacturer and marketer of major home appliances with annual sales of more than $13 billion, 68,000 employees and nearly 50 manufacturing and technology research centers around the world.

It’s possible other bidders might step forward. Swedish-based Electrolux’ held a conference call in connection with its second quarter earnings on Tuesday, where the chief executive officer left open the question whether it was considering a bid for Maytag.

“I think whoever buys Maytag … will have quite the tough journey,” said CEO Hans Straberg, the Associated Press reported.

Maytag‘s Problems

Maytag, the nation’s third largest appliance manufacturer, has been squeezed in recent years by increasing steel and fuel costs, intense competition from Asian companies and slipping profitability. Its North American market share has fallen to about 15 percent, and it has seen extreme pressures on its stock price, falling below $10 a share for a period this year.

Last year, Maytag eliminated 1,100 salaried workers (20 percent of the workforce) as part of its “One Company” restructuring plan that merged Maytag‘s Hoover business operations with Maytag Appliances and its corporate structure in an effort designed to save $150 million in annual costs. It also closed a refrigerator plant in Galesburg, Ill., moved some of those operations to a new plant in Mexico and its recently-acquired Amana operation in Iowa. The company also agreed to settle a multi-million dollar class action lawsuit over problems with its early generation horizontal-axis Neptune washing machines.

Locally, the company weathered a three-week strike at its Newton laundry facility. Workers eventually agreed to a contract that called for significant increases in worker health care payments, although the actions taken by the collective bargaining unit was later termed not significant enough to warrant any new production platforms in Newton. Employment levels have continued to drop at Maytag Plant 2, built just after the conclusion of World War II, with local workers saying they have been informed another large layoff is scheduled for late August. Maytag officials would not confirm a pending layoff.

Maytag was successful in gaining contract concessions at both its Amana and Herrin, Ill., operations. It announced in April after its poor first quarter earnings report that saw profits fall by 80 percent from the same period the year before, that “more aggressive steps” need to be made to improve its cost position by reducing its manufacturing footprint.” Although no final decisions have been made, “base cost projections” provided to Triton in regard to its foregoing operations calculate $140 million “as a reasonable estimate of the cost savings associated with the proposed shutdowns” of its Newton, North Canton, Ohio and Florence, S.C., operations.


Ripplewood’s interest in Maytag dates back to February 2004 when it was noted at a meeting of the board of directors that Ripplewood “might have an interest in discussing with the company an evaluation of the global competitive environment of the home appliance industry,” the proxy states. Ripplewood representatives first contacted Maytag CEO Ralph Hake on March 4, 2004.

In June, Hake first met with Ripplewood CEO Tim Collins. Discussions centered on the globalization of the home appliance industry and its impacts on Maytag. Hake informed Collins at that meeting “Maytag was not interested in pursuing a relationship at that time.”

Discussions, however, continued between Ripplewood and Maytag over the ensuing months before entering into a confidentiality agreement between Maytag and Ripplewood in September. On Dec. 2, 2004, Ripplewood made a preliminary proposal to acquire Maytag for $23.50 per share in cash. The board of directors discussed the offer in detail before deciding not to respond to the offer at that time.

In February, Ripplewood made another offer of $17.25. The decrease in the offer price from Ripplewood’s December proposal was “caused by numerous considerations,” the proxy states, “including the significant deterioration in the company’s financial performance, the failure to meet the 2005 ‘0 + 12’ operating profit forecast by 78 percent for the month of January 2005, the negative earnings momentum reflected in the company’s stock price, which had fallen from $20.37 per share on Dec. 1, 2004, to $15.57 per share on Feb. 18, 2005, and significant recent issues in the company’s distribution channels.”

Ripplewood told Maytag in February that it understood the board might not think shareholders would find the $17.25 offer attractive and would be willing to raise the offer as high as $18.75 per share in cash if its lenders “were satisfied with additional diligence” on the company’s first quarter earnings.

The Maytag board of directors voted 8 to 2 to reject pursuing a transaction at that time.

On May 5, Ripplewood submitted a written proposal to acquire Maytag for $14 in cash. The proposal was down from its February offer due to considerations including “that Maytag had experienced significant deterioration in its core business fundamentals.”

Discussions about the offer continued between Maytag board members. CEO Hake, according to the proxy, “noted that while the company faced challenges and while in his view it could take several years for the company to achieve a satisfactory earnings turnaround and while management had recently failed to accurately predict future earnings, it was nevertheless his belief that the $14 per share offer price in Ripplewood’s May 5 proposal did not reflect the value of the company and that he would not as a director vote in favor of a transaction with Ripplewood at that price.”

On May 19, at a special meeting of the board of directors, eight directors voted in favor of accepting the $14 offer with Hake and Dr. W. Ann Reynolds abstaining and one member absent. The announcement of the merger proposal was made that evening.

Reasons to recommend approval

The proxy statement outlines the board of directors’ reasons for seeking shareholder approval of the Ripplewood offer.

The 16-point bulletins included in the proxy report note the “adverse conditions” in the home appliance industry caused in part by increasing globalization, the negative earnings guidelines projected for the year and the board’s consideration that a turnaround could “take several years,” the company’s “consistent failure to achieve its one-year management forecasts beginning in 2003,” its downgrade in debt ratings, its ability to continue to solicit for better offers, its financial advisor’s opinion the offer price was fair, the fact the offer price of $14 was 21 percent above the closing price of the stock the day before the merger agreement was announced (although nearly 30 percent below the price when Maytag first began discussions with Ripplewood in 2004) and the ability of Maytag to continue to conduct negotiations with additional parties for a superior takeover arrangement.

Drawbacks to the merger arrangement discussed by the board prior to its approval, according to the proxy, include Triton’s inability to acquire its debt financing, the inability of current shareholders to benefit from future gains made by the privately held company, the risks to the company should the merger not close — including the diversion of management and employee attention, employee attrition and the effect on business customer relationships, the different interests of Maytag‘s directors and executives should the merger move forward compared to typical stockholders and the possibility of being required to make the $40 million agreement termination fee.

Special interests

The proxy statement warns shareholders that some of Maytag‘s directors and executives will be treated differently concerning the financial benefits accrued to them, and could construe conflicts of interests based on their positions, should the merger agreement be approved by general shareholders.

The merger agreement allows for each outstanding stock option held by a Maytag executive or director to become vested and exercisable at the $14 stock acquisition proposal.

“However,” according to the definitive proxy statement, “because each stock option held by a Maytag director or current or former executive officer contains an exercise price that exceeds the merger consideration, no value will be obtainable in respect of these stock options.”

At the time of the merger, all unvested restricted stock units and performance units held by employees and directors will vest in full and be settled based on the buyout price of $14 per share. Chief Executive Officer Hake will be entitled to $632,616. The aggregate amount that will be payable to all directors and current and former executives in the settlement of these stock units is estimated at $1,117,143.

In addition, each current and former executive officer participates in incentive programs and profit plans. At the time of the merger, each participant in those plans will receive accelerated vesting and settlement of the awards which will award Hake $3,075,000. The aggregate amount that will be payable to all current and former executive officers is approximately $6.6 million.

The agreement also allows for several “change of control” agreements that grants severance benefits including multi-year lump sum base salary payments, annual bonuses, long-term incentive awards, pension benefits, outplacement services and credit toward retiree health benefits. Should each of the current Maytag executives be eligible for “change of control” benefits, the amount payable under the terms of the agreement would exceed $26.5 million. Hake, alone, would be eligible for more than $9.3 million with most of the rest of the executives accruing more than $2 million.


Maytag and its directors have been named as defendants in several substantially similar lawsuits, including one filed in Jasper County District Court just a week after the merger announcement was made in May, claiming the $14 per share offer to be paid stockholders is unfair. In the suit filed locally by attorneys Doug Gross, Harold Schneebeck and Richard Updegraff of the Des Moines law firm of Brown, Winick, Graves, Gross, Baskerville and Schoenebaum on behalf of the Sheetmetal Workers Local 218 Pension Fund, the petition claims the Maytag directors “artificially depressed” the stock price.

“Defendants had artificially depressed the price of the company’s shares with numerous multi-million dollar restructuring charges,” the suit alleges. “The company’s restructuring, or so-called ‘One Company’ restructuring plan, was established in order to enable the company to flourish in future quarters. In effect, by selling the company just after depressing the company’s shares through restructuring charges, the defendants are taking the shareholders’ monies (which defendants had taken and purportedly used for improving the company for future quarters) and selling not just the company but a company and its future. And worse, the defendants are doing so when the shares are artificially depressed, just as the company is just emerging from the ‘recovery room.’

“Defendants knew that by selling the company cheaply and agreeing to a termination fee, they could ensure that the buyer would not balk at the cost of funding the massive payments they will seek in connection with the ‘change of control’ payments they negotiated for themselves. In addition, defendants structured the acquisition so that the company would be sold before the shares could reflect the true value of the company, i.e., before the restructuring/One Company plan bore fruit.”

The lawsuit filed in Newton seeks class action status and asks the court to enjoin the defendants from moving forward with the acquisition. Maytag, in its proxy filing, believes the lawsuits are without merit.

Stocks and pensions

The proxy outlines procedures on how Maytag shareholders will be paid for their stocks upon consummation of the merger agreement. For those who own Maytag stock through 401(k) programs, individuals will be paid $14 for each share held and the funds will remain in the investment accounts. For Maytag employees involved in the employee stock purchase plan, workers will receive $14 for each share owned. The purchase plan was suspended July 1, with no new contributions deducted from employees’ pay. Those holding stock options will see those options automatically vest and become exercisable. However, at $14 per share, all options are “under water,” meaning the option price is above the proposed merger amount. For those holding restricted stock units, the shares will vest and will be settled at $14. Personal owners of stock will receive $14 per share.

Maytag said the status of the pension fund has not changed. At the end of 2004, $1.2 billion was invested in the fund, which is insured by the federal Pension Benefit Guarantee Corporation. While it is legally possible to change or terminate the pension plan, any benefits which have been accrued are protected. If the plan was terminated, employees would still be eligible to receive the benefits earned up to that time.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: