Hake tries to calm jittery Maytag workers

Hake tries to calm jittery Maytag workers
 
Date August 23, 2005
Section(s) Local News
Brief  
 
By PETER HUSSMANN

Editor

Maytag CEO Ralph Hake tried to calm jittery employees on Monday after the 112-year-old Newton-based appliance manufacturer agreed to be bought out by its largest rival.

In a letter issued after Maytag agreed to be acquired by Whirlpool, Hake told employees that it’s business as usual as the long process to complete the acquisition moves forward.

“I want to remind you that Maytag is a great company, and we’re still in business to take care of our customers by producing consumer-driven products,” Hake said. “That goal does not change, even as we look at an upcoming merger. We need to continue to do our jobs — selling, distributing, manufacturing and developing our products. Each of us should continue to come to work every day with a strong commitment to do our jobs to the best of our abilities with pride in our accomplishments.”

Late Monday morning, Maytag and Whirlpool entered into a definitive agreement where the Benton Harbor, Mich.-based company will acquire all of Maytag‘s outstanding shares in a cash and stock merger valued at $21 per share. The deal, including the assumption of $977 million of Maytag debt, is valued at $2.7 billion.

In his letter to employees, Hake acknowledged that a combined Maytag-Whirlpool operation will result in the loss of jobs, but he attempted to mitigate the impact locally by saying assurances have been received that all employees would be considered during the integration of the two companies.

“Understandably, I realize that many of you want to know how a possible merger with Whirlpool may impact your job; however, it’s far too early to talk about how any given department or individual job may be affected,” Hake said. “I do recognize that in any combination like this, where duplicate positions may exist, it is reasonable to expect that some jobs will be eliminated. Whirlpool assures me that the best talent and contributors available — regardless of whether they’re currently Maytag or Whirlpool employees — are likely to be considered for assignments in the new company. Many of you know this because of your experiences with the integration processes when Maytag acquired Amana, Jenn-Air and Magic Chef.

“In recent conversations that I have had with Jeff Fettig, Whirlpool chairman and CEO, he has assured me that Whirlpool’s goal is to create a combined company with the world-class talent and resources required to successfully compete in this global business — a goal that should not be foreign to anyone at Maytag. He said that together, Whirlpool and Maytag will develop a process to identify specific positions and job opportunities, with a fair and open evaluation for selecting the best candidates for each available position. Above all, Jeff has made the commitment that all employees will be treated with the deserved respect and dignity throughout the transition period of the integration.”

Principles in the deal offered supportive assessments of the planned merger.

“The combination of Whirlpool and Maytag will create very substantial benefits for consumers, trade customers and our shareholders,” said Whirlpool CEO Jeff Fettig. “This transaction will enable us to achieve significant efficiencies and better asset utilization. It will also allow us to offer a wider range of products to a much broader consumer base.”

Maytag board of directors member Howard Clark said the deal was the best alternative for the struggling corporation.

“After careful consideration in conjunction with our financial and legal advisors and an independent committee of Maytag‘s board consisting of all non-management directors, we re-evaluated the transaction with (Ripplewood) and concluded that the Whirlpool agreement is superior and is in the best interest of our shareholders,” he said.

The Whirlpool deal was made possible after Ripplewood Holdings, the lead investor in a private equity consortium’s attempt to take control of the company, declined to raise its $14 cash offer for Maytag stock.

“We have carefully considered all our options and concluded that it is not in the best interests of Ripplewood and our investor group to match Whirlpool’s offer or submit a new bid for Maytag,” said Timothy C. Collins, chief executive officer of Ripplewood, in a statement. “We express our hope that Maytag, its shareholders, employees and the communities of which it is a part are well served by its agreement with Whirlpool, and we wish them well.”

Analysts covering the home appliance industry speculated during the bidding war for Maytag that a Whirlpool takeover would have the most dramatic negative impacts for Newton. The analysts said that Whirlpool would likely close the Maytag corporate headquarters fairly quickly. Production at the Newton laundry plant could possibly remain under the merger, although production of some Maytag products would likely migrate to Whirlpool’s low-cost facilities in Mexico and Asia. Ripplewood said it would retain Maytag‘s current management structure in Newton and its Iowa-based plants, at least temporarily.

Maytag employs approximately 18,000 people worldwide, with about 2,000 to 2,500 at its headquarters and production facilities in Newton.

A combined Whirlpool-Maytag company would create the world’s largest home appliance manufacturer, pushing it ahead of Sweden’s Electrolux. The company would capture approximately 50 percent of the North American market in major appliances. In laundry, the combined companies would capture as much as 70 percent of the market share, an issue that will drive close federal regulatory scrutiny.

Whirlpool has said the merger is pro-competitive and has offered several reasons why the merger will pass Federal Trade Commission review. The company cites the increasing competitiveness of the home appliance industry with a wave of Asian companies making inroads in the North American market. Whirlpool further notes that it has received support from major appliance retailers and buyer groups, including the support of the chairman of Lowes, the second largest retailer of appliances in the U.S.

“Overall this transaction will translate into better products, quality and service, as well as efficiencies, which will enhance our ability to succeed in the increasingly competitive global home appliance industry,” Fettig said. “We remain highly confident that we will receive regulatory clearance for this transaction in a timely manner.”

Whirlpool has agreed to pay Maytag $120 million “reverse break-up fee” if it is unable to gain regulatory clearance. The agreement gives Whirlpool until the end of 2006 to complete the merger.

In addition to regulatory approval, the merger also must gain the support of Maytag shareholders. In announcing the deal, the companies said a shareholder vote on acquisition is expected to be held before the end of the year with the transaction closing sometime in the first quarter of 2006.

In bowing out of the bidding war for Maytag, Ripplewood was paid a $40 million termination fee by Maytag that was reimbursed by Whirlpool. In addition, Whirlpool is providing up to $15 million to assist Maytag in retaining key employees. The shareholder meeting scheduled for Sept. 9 has been cancelled.

The agreement also contains termination rights for both Whirlpool and Maytag that if enacted could force Maytag to pay Whirlpool $60 million and reimburse it for its $40 million buyout of the Ripplewood deal.

Maytag shareholders will receive, for each share held, $10.50 in cash and a fraction of a share of Whirlpool stock for each Maytag share they own. If the average price of Whirlpool stock during a 20-day period just prior to the close is $91.79 or greater, a Maytag shareholder would receive 0.1144 of a share of Whirlpool stock for each Maytag share they hold. If the the price of Whirlpool is $75.10 or less, the stock fraction would amount to 0.1398. Between the two prices, the exchange ratio will vary proportionately.

The letter to Maytag employees also included information pertaining to Maytag‘s current benefit and pension plans. The company’s current 401(k) program will continue until at least Dec. 31, 2006, but upon completion of the merger, the match will no longer be made in Maytag stock. The existing benefit plans also will remain in effect until the end of 2006.

The information provided to employees stated that Maytag has $1.2 billion invested in its pension fund and that any benefits that have accrued will be retained by employees, even if the plan is terminated in the future.

Hake urged employees to continue giving their best effort.

“While the merger agreement is pending, we need to remain focused on our business — anything short of our best efforts can weaken our overall position in the marketplace, which would severely impact our business should this deal fail to be completed for any reason.

“During the coming months, it is my personal hope that we all pull together to move our Maytag business forward and in the strongest possible position.

“I know this is a very stressful time for you and your families, and we will do everything we can to see that this process reaches a conclusion sooner than later.

“While we have a long way to go in the overall process, it’s important to remember that there are many people depending on us — most of all our shareholders and our customers. I am confident we won’t let them down.”

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