Maytag approves Whirlpool purchase bid

U.S. antitrust regulators to study $1.7 billion deal

August 23, 2005|By James P. Miller | James P. Miller,CHICAGO TRIBUNE

Maytag Corp. directors, after waiting in vain for a rival suitor to raise its bid, agreed yesterday to sell the company to longtime appliance-industry rival Whirlpool Corp. for $1.7 billion.

The proposed acquisition is far from a sure thing, however. Because a Whirlpool/Maytag combination will hold a nearly 50 percent share in certain segments of the household-appliance marketplace, the acquisition is expected to face tough, protracted scrutiny from federal antitrust regulators.

Yesterday's accord ends a lengthy bidding process that began in May, when an investor group led by the New York buyout firm of Ripplewood Holdings offered to buy financially struggling Maytag for $14 a share, or $1.12 billion. Under that plan, Maytag was granted 30 days to seek a higher offer.

Maytag's efforts to find another buyer went nowhere, however, until Whirlpool entered the bidding at the 11th hour, offering $17, then $18 and finally $21 a share this month.

Even after Whirlpool entered the bidding, Maytag's directors had been recommending that stockholders approve the Ripplewood offer at an upcoming vote. But the board changed its recommendation this month after Whirlpool raised its bid to $21 a share.

Once Maytag declared Whirlpool's bid superior, Ripplewood had five working days to raise its bid. When that period expired Sunday night, with no response from the New York buyout group, Maytag agreed to a definitive pact with Whirlpool yesterday.

Maytag shareholders must still vote on the agreement, which calls for them to receive $21 in cash and Whirlpool stock for each share they own.

Maytag, despite having one of America's best-known brand names, has been losing market share and generating disappointing financial results for some time. The Newton, Iowa, company is considered too small to compete with larger rivals, and its reliance on high-cost U.S. manufacturing facilities has hampered its ability to compete with increasingly aggressive low-cost Asian producers in the North American market.

Observers think Whirlpool will be able to wring hundreds of millions of dollars in annual savings from its Maytag purchase, through efficiencies of scale and other factors.

The combination "will enable us to achieve significant efficiencies and better asset utilization," said Whirlpool Chairman and Chief Executive Officer Jeff Fettig.

What remains to be seen, though, is what, exactly, Whirlpool intends to do with Maytag if the deal goes through. Maytag has relatively high-cost production facilities in the Iowa towns of Newton and Amana, and a third in Ohio; those operations have been considered likely to face downsizing or closure no matter which company won the bidding for Maytag.

Whirlpool's options could conceivably range from simply using the Maytag brand and closing all its operations, to investing heavily to upgrade Maytag facilities.

And in contrast to the situation if Ripplewood were the acquirer, Whirlpool is considered likely to close - or at least cut the work force - at Maytag's Newton corporate headquarters. That's because when two companies combine, the buyer typically consolidates "back-office" administrative tasks such as payroll and human relations; the savings from such duplicate-job eliminations can be substantial.

In a letter sent to Maytag workers, Maytag CEO Ralph Hake said, "I realize that many of you want to know how a possible merger with Whirlpool may impact your job," but "it's far too early to talk about how any given department or individual job may be affected."

Under its original agreement with Ripplewood, Maytag was obliged to pay Ripplewood a $40 million "breakup fee" if Maytag accepted another suitor's proposal. Maytag said it paid the fee to Ripplewood yesterday and was reimbursed by Whirlpool.

In order to encourage Maytag directors to vote for its admittedly uncertain proposal, Whirlpool has also agreed to pay Maytag a $120 million "reverse breakup fee" if federal regulators eventually block the deal.

Whirlpool said, perhaps optimistically, that it thinks the deal could close as early as the first quarter of next year. As part of the transaction, Whirlpool is also responsible for $977 million in Maytag debt; some debt-rating concerns have said they are likely to lower Whirlpool's debt rating if the deal goes through.

In trading yesterday, Maytag's shares slipped 2 cents to close at $18.69 on the New York Stock Exchange. The stock is trading at a discount to the $21 buyout price because it will be months before investors receive their money and because of the possibility that the deal could be derailed on antitrust concerns. Whirlpool's shares declined 35 cents to $81.48 on the Big Board.

The Chicago Tribune is a Tribune Publishing newspaper.

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