Whirlpool Gets Maytag

August 22, 2005
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BENTON HARBOR — The board of directors at the country’s third-largest appliance manufacturer recognizes when it has been dealt a blackjack. Knowing when to fold ’em, the directors put pen to paper and solidified a $21-per-share offer from Benton Harbor-based Whirlpool Corp. to take over the company that introduced America to the Maytag “lonely repairman.”

Both companies announced Monday that they had come to an agreement worth about $2.7 billion. Whirlpool will take on around $977 million in Maytag debt. The company will compensate Maytag shareholders with $10.50 in cash and fractional shares of Whirlpool’s common stock, totaling $21 per each share of Maytag held by the investor. The deal also includes a payment from Whirlpool to Ripplewood Holdings, a New York private equity firm. Whirlpool’s offer interrupted a pending buy-out transaction between Ripplewood and Maytag. To settle the issue, Whirlpool paid Ripplewood $40 million.

At least two obstacles remain before the takeover is a done deal. First, Maytag’s shareholders must vote to approve the purchase. With the stock hovering around the $18 mark, however, the opportunity to cash in on a $21-per-share purchase seems like an appealing return.

The other more serious obstacle is gaining approval from the Federal Trade Commission. By taking on Maytag, Whirlpool would manufacture more than 50 percent of the appliances sold in this country. That’s the kind of thing that makes federal regulators start smelling a monopoly. Whirlpool CEO Jeff M. Fettig, however, has been vocal in his reassurances that the deal will pass regulatory scrutiny. In fact, the deal signed by Maytag includes a provision for a $120 million “reverse break-up” fee should the deal fall through because of an FTC veto. Fettig has argued that the point is moot because when the Kenmore appliances Whirlpool manufactures under contract with Sears, Roebuck and Co. are removed from the equation, the appearance of a monopoly goes away. Since Whirlpool simply manufactures and does not market those appliances, they should not be counted.

If Maytag’s shareholders approve the purchase, Whirlpool has suggested that the deal could be complete (with federal approval) by this winter.

Although no money has changed hands, the implied shutdown of Maytag’s Newton, Iowa, headquarters appears to be closer. As Fettig continues to discuss “significant efficiencies and better asset utilization,” his counterpart at Maytag, CEO Ralph Hake, keeps paring away the work force.

The Des Moines (Iowa) Register reported last week that Maytag had laid off another 200 employees at a plant in the same town as its headquarters. The total number of employees at the plant has shrunk from 2,600 a year ago to under 1,000 today, according to a union spokesman. Many media reports have suggested that Whirlpool will absorb the management infrastructure in its Benton Harbor headquarters, closing the erstwhile Maytag epicenter.

“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,” Bill McKendry, founder and chief creative officer of Hanon McKendry/The Brand Consultants, told the Business Journal for an earlier story.

Maytag’s shareholders are expected to vote to approve the sale by the end of the year.    

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