Haier calls off takeover bid for Maytag

PUBLISHED : Thursday, 21 July, 2005, 12:00am
UPDATED : Thursday, 21 July, 2005, 12:00am

Haier abandons bid for Maytag

Haier Group, China's biggest maker of home appliances, has abandoned its attempt to buy United States-based Maytag Corp.

Maytag, the third-largest home appliance maker in the US, late on Tuesday said that Haier and its two US private equity partners, Bain Capital and Blackstone Management, had withdrawn an offer to buy the company.

'They stated that they have determined not to further pursue the transaction to acquire the outstanding shares of Maytag,' the company said in a statement.

A Haier spokesman yesterday declined to confirm this, saying that it would not 'unilaterally' reveal information on the matter.

Observers say the firm pulled out in part because it did not want to trump an 11th-hour rival bid by Whirlpool. Haier was also taken aback by the ferocity of the political opposition to a bid by CNOOC to buy US oil firm Unocal.

Haier's retreat underscores the difficulties Chinese companies face when seeking to expand overseas.

Mainland firms venturing abroad are learning the hard way that overseas acquisitions are not simply a matter of money, but also involve politics and public relations.

Success requires winning the hearts of workers, shareholders and the public - a complicated task for which most Chinese companies are ill-prepared.

Analysts said that several factors contributed to the company's about-face in the month since it made an offer that valued Maytag at US$16 a share. This topped a bid made in May by an investor group led by Ripplewood, a New York-based private equity firm, for US$1.1 billion, or US$14 a share.

The most unsettling development was the virulent opposition sparked by CNOOC's bid to acquire Unocal. Critics have focused on the fact that CNOOC is Chinese and, like Haier, a state-owned firm.

Haier may have chosen to distance itself from the CNOOC debate - even though it is not in a sector as sensitive as energy - to protect itself for future acquisitions.

A second reason for Haier's retreat was the higher price tag, after a surprise offer on Sunday of more than US$1.3 billion, or US$17 a share, from Whirlpool, the biggest home appliance maker in the US and one of Haier's most important global rivals.

A third factor, analysts speculate, is that Haier may have realised how difficult it would be to integrate the cultures of two vastly different companies - one founded 112 years ago in the midwest US and the other a Chinese state firm founded in 1984 on the ashes of a money-losing local collective.

If it had succeeded, Haier would have had to negotiate with two tough trade unions and face the unremitting scrutiny of the US media and investment community, while at home it has no unions, a docile press and easy access to capital from state banks.

Ji Shupeng, a mergers and acquisitions specialist at Holly High investment, said Haier's decision to withdraw was probably wise.

'North America is no longer suitable for production of low value-added, high-energy consumption products. If Haier had succeeded, it would have faced the enormous difficulty of cutting staff and changing the base of production. If it had failed, it would have threatened the very survival of the company.'

He said Haier was also constrained by tight capital in a sector with a profit margin of less than 2 per cent. 'Last year prices of thin steel plate and plastics rose by more than 20 per cent and copper by more than 40 per cent. White-goods [are ill-placed] to endure a sharp increase in production costs.'

Last December, Lenovo Group paid US$1.25 billion for IBM's personal computer business, a deal seen at the time as a model for an overseas acquisition by a Chinese firm. Since, the official press has reported hitches, including the departure of American managers unwilling to work for Chinese bosses and unhappy with their pay and conditions. It is asking if Lenovo paid too much for a business which IBM wanted to dispose of.

Even without Maytag, however, Haier remains a significant company in the US, with a 10 per cent share of the air conditioner and refrigerator markets, service centres in 50 states and a presence in the country's biggest chain stores.

In an April speech, Haier chairman Zhang Ruimin seemed to foresee the Whirlpool bid: 'We have reached a turning point in our internationalisation and are meeting the opposition of our foreign competitors. If we pass the test, we will be victors. If we fail, we will become a martyr.'