Whirlpool’s purchase motives questioned

Whirlpool’s purchase motives questioned
Date August 17, 2005
Section(s) Local News

AP Business Writer

Skepticism is growing about whether appliance giant Whirlpool Corp. is serious about buying rival Maytag Corp. or is just looking to weaken a competitor by dragging it through a lengthy antitrust process.

“There’s something odd about this purchase,” said Steve Sleigh, spokesman for the International Association of Machinists, which represents Maytag workers in Iowa and Illinois and Whirlpool workers in Michigan.

“What I don’t want is this situation to be in limbo for an extended period of time, weaken Maytag to the point that Whirlpool pulls out because they have the option to do so and leaves Maytag not as strong as it could be,” Gov. Tom Vilsack said.

Questions from analysts, labor and government officials center on why Whirlpool continues to offer assurances that the deal would win regulatory approval when antitrust concerns seem obvious.

Whirlpool has offered $1.79 billion, or $21 a share. Including the assumption of $977 million of Maytag debt, the entire deal is valued at about $2.7 billion.

Industry analysts said most troubling is whether regulators would allow two of the three largest appliance manufacturers to merge. A combined Whirlpool-Maytag corporation would make it the largest appliance manufacturer in the world.

Analyst Nicholas Heymann of Prudential Equity Group estimates that a combined company would hold 81 percent of the U.S. market in gas clothes dryers and 74 percent of the market in electric dryers.

About 72 percent of washing machines and half the dishwashers bought in the United States would be made by Whirlpool or Maytag.

Overall, Whirlpool would have about 48 percent of the market share in major appliances, far ahead of General Electric, which has about 26 percent and Electrolux, with about 20 percent.

“With combined U.S. laundry market shares over 70 percent … antitrust issues could be a problem,” Heymann said in a recent report to investors.

Whirlpool executives have said they are so confident of approval, they will pay Maytag $120 million if regulators block the deal.

Whirlpool’s market is global, not U.S.-centered, and there is growing competition from South Korean companies LG and Samsung and China’s Heier, Whirlpool spokesman Steve Duthie said.

Steve Axinn of Axinn, Veltrop & Harkrider, a New York law firm with extensive antitrust experience, said a regulatory review of the deal could take as long as nine months and is as likely to fail as it is to succeed.

“I think this case is as close to a toss-up as I have ever seen,” Axinn said.

However, another industry analyst says anti-trust concerns should not be an issue for the merger to be completed.

David MacGregor of Longbow Research in Independence, Ohio, says the support Whirlpool has received from its top 20 trade customers and buying groups, including the top four retailers and top three buying groups which account for 90 percent of retail appliance sales makes a Justice Department block unlikely.

If the deal fails to pass muster, Whirlpool could simply pay Maytag the $120 million breakup fee and walk away.

The merger plan calls for the acquisition to be completed by Dec. 31, 2006.

Maytag also has an interest in seeing the agreement through. The merger plan requires Maytag to pay Whirlpool $60 million if it breaks its agreement to be acquired by Whirlpool. In addition, Maytag would be required to repay the $40 million break-up fee Whirlpool is willing to pay to Triton Acquisition Holding Co., the equity investment consortium led by Ripplewood Holdings.

Whirlpool still would benefit because Maytag likely would emerge as a much weaker competitor, Axinn said. Maytag could lose employees and customers such as Lowe’s and Home Depot during the lengthy review process.

Axinn believes, though, that Whirlpool’s intentions are sincere.

“I think they really want to own the company. I think they’ll put up a real hard fight for it,” Axinn said.

Even if Whirlpool does succeed, union officials are skeptical about the company’s plans for its former rival.

“We don’t know what Whirlpool’s intentions are,” said Sleigh of the Machinists. “We suspect they will move a great deal of production to facilities they have in Mexico and China. We have not received any assurances from Whirlpool that they wouldn’t do that.”

A loss of jobs is Vilsack’s concern as well.

“My hope would be that whatever happens gets done in a relatively quick period of time and done in a way that maximizes the opportunity for the continuation of the workforce at Newton …” the governor said.

Meanwhile, the other company interested in buying Maytag, Triton Acquisition Holding Co., has until Sunday to respond with an increased offer. Triton initially bid $14 a share, or $1.13 billion. Friday’s shareholder vote on the Triton offer was postponed until Aug. 30 after Maytag‘s board accepted Whirlpool’s $21 bid late last week.

Also on Tuesday, Moody’s Investors Service placed the ratings of Whirlpool under review for possible downgrade and revised its rating review of Maytag to direction uncertain.

Moody’s said its reviews would focus on the structure of the financing package involved in Whirlpool’s $2.7 billion bid for Maytag.

Newton Daily News Editor Peter Hussmann contributed to this story.


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