Whirlpool bids $20 a share, or $1.6 billion, for Maytag

Unusual `reverse breakup fee' of $120 million is part of offer

August 09, 2005|By James P. Miller | James P. Miller,CHICAGO TRIBUNE

Whirlpool Corp., seeking to dislodge another bidder and lock up a deal, raised its buyout bid for struggling industry rival Maytag Corp. $2 yesterday to $20 a share, or $1.6 billion.

In a rare and potentially costly maneuver, Whirlpool's offer also includes a promise to pay Maytag a $120 million "reverse breakup fee" if the government blocks the acquisition on antitrust grounds.

The sweetened offer "reflects both the value we see in the combination of Whirlpool and Maytag and the confidence we have in the ultimate receipt of regulatory approval for the transaction," said Whirlpool Chairman and Chief Executive Officer Jeff Fettig.

"This seems like a very full price for Maytag," said B. Craig Hutson, of the bond analysis firm Gimme Credit. "While Whirlpool would be purchasing well-known brands, it will also receive a high-cost manufacturing [operation], underfunded pension liabilities, no known incremental technology advantage and a company losing market share."

Whirlpool, the nation's largest appliance maker, thinks it can wring substantial savings by buying No. 3 Maytag, through increased operating efficiencies as well as savings on the purchase of steel and other raw materials.

Maytag officials haven't accepted Whirlpool's increased bid, and the Newton, Iowa, company didn't comment yesterday.

On Wall Street, investors reacted positively to the news. Shares of Maytag climbed $1.60, or 9.4 percent, to close on the New York Stock Exchange at $18.58 - a price that suggests enthusiasm was tempered by lingering reservations about whether the $20 deal will ever get done. Whirlpool shares also moved higher, rising $2.75 to $82.46.

For Maytag, the situation is complicated. In May, after a string of financial disappointments drove the company's stock below $10 a share, Maytag agreed to be acquired for $14 a share in cash by an investor group led by the New York buyout firm Ripplewood Holdings.

Ripplewood is a "financial" buyer, meaning it intends to operate Maytag as an investment that will generate a stream of revenue and, it hopes, increase in value.

Soon after the deal was announced, however, two "strategic" buyers - industry rivals hoping to bolster their competitive position by acquiring Maytag - arrived on the scene.

China's Haier Group announced it was prepared to pay $16 a share, but never made a formal bid and eventually withdrew from the running.

Whirlpool originally indicated it would be willing to pay $17 a share, but said it couldn't make a firm offer until it examined Maytag's in-house account books. Maytag resisted, but last week opened its books to its rival after Whirlpool raised its tentative bid to $18 a share. Yesterday, Whirlpool raised its ante to $20, this time in the form of a binding formal proposal.

Maytag officials have publicly maintained they favor Ripplewood's $14-a-share bid. Stockholders are to vote Aug. 19 on that proposal.

The federal antitrust regulators who review corporate mergers to make sure they don't impede competition have already signed off on Ripplewood's proposal to buy Maytag.

But they may well try to throw a monkey wrench into a Maytag-Whirlpool combination, given the substantial share of the U.S. appliance market each company enjoys. It's that possibility that has clouded the bidding for Maytag.

If the regulators decide six months from now to bar the Whirlpool deal, Maytag stockholders could find themselves high and dry, with the company's finances having worsened, and no buyer in sight.

Maytag's deal with Ripplewood also calls for Ripplewood to receive a $40 million fee if Maytag accepts another company's bid; Whirlpool said it would pay that sum as well.

Finally, Whirlpool agreed to provide up to $15 million to cover what are known as "golden handcuffs" - hefty bonuses target companies often implement in order to keep top-level executives from jumping ship while a potentially job-threatening merger is imminent.

With its $20 offer and its $175 million package, Whirlpool has "put enough money on the table, they think, to pre-empt further bidding" by other interested parties, Kevin O'Mara, a New York attorney who specializes in corporate mergers, told the Associated Press.

"They're clearly looking to get this acquisition done," he added.

Ripplewood had no immediate comment.

The investing group's leveraged-buyout offer would pay Maytag holders all in cash; Whirlpool's bid would pay half in cash and half in the form of Whirlpool stock. While cash is often considered a stronger acquisition currency, many investors prefer stock-swap format, which averts a major capital-gains liability.

The Chicago Tribune is a Tribune Publishing newspaper.

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