Why Whirlpool Wants Maytag

August 1, 2005
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BENTON HARBOR — Whirlpool Corp. recently put in an $18-per-share (about $1.4 billion) bid to buy out competitor Maytag Corp. With annual revenues of over $13 billion, Whirlpool dominates the field, with rival General Electric in second place. By sweeping up third-place, $4.7 billion Maytag, Whirlpool could form an appliance juggernaut that could hang the competition out to dry.

If Maytag approves the $1.4 billion buyout, Whirlpool will get the company’s 18,000 employees, its Newton, Iowa, headquarters and 15 manufacturing facilities in the United States and Mexico. It will also take control of a well-respected stable of brands, including Maytag, Hoover, Amana and Jenn-Air.

“What Whirlpool is bidding for is the brand equity. It doesn’t really matter what their manufacturing plants are like, or what their headquarters is like,” said Bill McKendry, founder and chief creative officer of Hanon McKendry/The Brand Consultants. McKendry said that Maytag has been able to position its brand in a way that other appliance manufacturers have not. Within the minds of consumers, he said, Maytag equals reliability.

“They’ve done a really good job over the years. They’ve made a stand for something very simple: dependability. It’s kind of like Volvo owns safety. United Airlines is ‘the friendly skies,’” he said.

Although the other brands don’t have nearly the same strength as Maytag, McKendry said, they hold their own in the marketplace. He suggested that consumer surveys would surely see Maytag sub-brands such as Amana and Jenn-Air come to mind with similar frequency as Whirlpool and GE. But name recognition is only part of the equation.

“That’s just half the battle. A brand is something that moves beyond the brain. It is a quality in the mind of the consumer that the consumer relates with that brand,” he said. And, of course, when consumers relate to brands, they buy them.

If Whirlpool is indeed looking to add a few more high-recognition brands to its portfolio, what will it do with the corporate infrastructure that is Maytag? Whirlpool isn’t saying exactly — but it is hinting.

According to corporate data sheets, Whirlpool manufactures about half of its products outside the United States. Maytag does only 25 percent of its manufacturing abroad — in Reynosa, Mexico, where labor is more expensive than in Whirlpool’s Asian manufacturing operations. Would a Maytag owned by Whirlpool shift more operations abroad?

In a slide presentation used to promote Whirlpool’s buyout bid, the company stated that “Whirlpool’s global manufacturing, procurement, R&D and supply chain will drive significant efficiencies,” and that “Overall efficiency improves as duplicate activities are integrated.” Does that mean that Whirlpool would “integrate” Maytag’s U.S. and Mexico “duplicate” manufacturing plants into its operations in places like Brazil and India? It seems that only time will tell, because Whirlpool and Maytag spokesmen will not. As of press time, neither company would share with the Business Journal any further information than what was made available in press releases.

Even if Whirlpool would choose to integrate Maytag manufacturing into its existing appliance plants, the company’s track record doesn’t necessarily suggest that it would move those operations overseas.

In 1986, Whirlpool bought the Kitchenaid brand from Hobart Corp. According to court documents, Whirlpool signed an eight-year contract manufacturing agreement with Emerson Electric Corp. to avoid the danger of anti-trust regulation. After that contract expired — and it was clear that Whirlpool had no intentions of unfairly asserting market pressure — the company maintained Kitchenaid manufacturing operations stateside. According to a Kitchenaid representative, most of the brand’s appliances are manufactured in Ohio, with a small number of microwaves and mini-fridges coming from Mexico.

Maytag initially showed resistance to discussing its proprietary financial information to competitor/suitor Whirlpool. The company worried that if federal regulators decided to quash the deal under the terms of anti-trust laws, Whirlpool would have received a free pass to look at valuable trade secrets. According to Whirlpool, the company got the green light from others firms in the industry, as well as from large retailers such as Best Buy and Lowe’s, and from Sears, for which Whirlpool manufactures many appliances sold under the Kenmore brand. With these reassurances, Maytag’s board agreed to open up the books last Wednesday. According to a curt news release from Whirlpool, the two firms have entered a confidentiality agreement.

Assuming Whirlpool’s due diligence investigation goes smoothly, the acquisition would have to be reviewed by federal regulators to ensure that it did not violate the conditions of any anti-competition laws. Whirlpool CEO Jeff M. Fettig said last week that he does not foresee any such problems.

“Our proposal clearly provides superior value to Maytag’s shareholders, and we are confident it will receive regulatory approval,” he said.    

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