Maytag agrees to acquisition

Tuesday, Aug. 23, 2005 | 10:01 a.m.

Capping off a three-month auction, Maytag agreed on Monday to be acquired by Whirlpool, its rival in the home appliance business, for $1.7 billion.

On Sunday, Ripplewood Holdings, the other remaining bidder, decided not to raise its $14-a-share cash bid for Maytag, prompting the company to accept Whirlpool's competing offer of $21 a share in cash and 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," Timothy C. Collins, Ripplewood's chief executive, said in a statement.

Ripplewood received a $40 million breakup fee from Maytag; Whirlpool has agreed to reimburse Maytag for the fee. Whirlpool will also assume $977 million in debt.

Whirlpool, which raised its bid three times, said it expected the transaction to close as early as the first quarter of next year, assuming the support of Maytag shareholders and antitrust approval.

The latter is not a given.

Though Whirlpool and Maytag executives said they were confident the deal would pass regulatory muster, the consolidation of market share will almost certainly draw heavy antitrust scrutiny. According to Morgan Keegan, Whirlpool, which owns the KitchenAid and Roper brands, now has 30 percent to 35 percent of the domestic appliance market, while Maytag, which makes Amana and Jenn-Air, holds at least 15 percent. A completed deal would catapult Whirlpool ahead of Electrolux of Sweden as the world's top maker of appliances.

Whirlpool has tried to temper concerns that the deal would strike regulators as anticompetitive by citing the support of its top retailers and buying groups, and noting that the combined entity's share of eight core appliance categories would still be below 30 percent.

In government filings, the company also said that the deal "would result in cost saving and increased innovation and quality that would increase competition," without which, "Maytag would continue to be a high-cost and increasingly ineffective competitor."

"The companies are hopeful that regulators will consider a global marketplace, and the lack of barriers to entry for new manufacturers," said Laura A. Champine, an analyst with Morgan Keegan. She said that Whirlpool would make the case that regulators should exclude consideration of Kenmore, Sears' private label appliance brand, from their market share calculations -- allowing Whirlpool, a top Kenmore manufacturer, to say that the combined company would still own less than 50 percent of the laundry appliance market. "That's a big if," Champine said, "but it's an argument that Whirlpool will make, hot and heavy."

Jeff M. Fettig, Whirlpool's chief executive, said in an interview: "Sears owns the Kenmore brand. We're one of at least five different manufacturers in a process that they manage. What we manufacture for them today we may not manufacture tomorrow."

"If we're the best supplier, we'll get the business," he said. "If we're not, we won't."

Fettig predicted that regulators would be less concerned with market-share projections and more focused on whether a Whirlpool-Maytag alliance would be customer-friendly. "We truly do believe consumers are going to benefit," he said.

On Aug. 11, Institutional Shareholder Services, the proxy advisory firm, said that Whirlpool's $21-a-share offer was actually worth $15.35, after fully discounting for antitrust risks. Whirlpool has agreed to pay Maytag $120 million if regulators scuttle the deal.

Maytag shares dropped 2 cents, to $18.69, on the news -- still more than double the multiyear low they set before Ripplewood made its buyout bid in May. Whirlpool shares fell 35 cents, to $81.48.