Maytag Goes for a Spin
Nat Worden
06/21/05 - 02:43 PM EDT
A new buyout bid has heads spinning again at
Maytag (MYG Quote).
A month after the Newton, Iowa, company surprised Wall Street by
accepting a $1.1 billion buyout offer, Maytag got a competing bid from a group that includes a fast-growing Chinese appliance manufacturer.
A group led by Bain Capital Partners, Blackstone Capital Partners IV and Haier America Trading wants to buy Maytag for $16 a share. That's $2 a share better than an offer Maytag accepted last month from Ripplewood Holdings. Maytag said it intends to proceed with further due diligence with the Bain-Blackstone-Haier group, though it stressed it "continues to support the Ripplewood transaction."
"The offer from Ripplewood is a tentative agreement," says Maytag spokesman John Daggett. "This latest bid is simply a preliminary proposal, so at this point, there has to be six to eight weeks of due diligence done before management can properly consider this bid. Essentially, Ripplewood proposed marriage while this new group just asked for a date. That's why the board said they'll pursue this new bid, but at this point, we still have an agreement with Ripplewood."
Laura Champine, an analyst with Morgan Keenan, calls the defense of the Ripplewood deal "interesting."
"I think that Maytag is accepting offers at the low end of their earnings cycle," says Champine, who doesn't own Maytag shares and whose firm doesn't have an investment banking relationship with the company. "To accept a $14 offer when your stock has traded below $14 for maybe a month in the last 15 or 20 years, I think that's a little questionable. I think shareholders are right to question that announcement."
To be sure, Maytag shareholders have suffered mightily in recent years. The company's business model has been rendered all but obsolete by Asian manufacturers benefiting from significantly lower labor costs. Last June, Maytag endured a dramatic restructuring that cut its salaried labor force by 20% and cut its dividend payments in half. Credit rating agencies slashed its debt to junk.
The knockout blow came in April when Maytag posted $7.7 million in first-quarter profits -- one-fifth of its earnings from the same quarter last year -- and halved its earnings guidance for the year. Shares lost more than a third of their value, having already fallen steadily for years.
Smelling blood, Ripplewood came forward in May. While management agreed to the deal, some shareholders wrinkled their noses at the price tag and accused senior executives of looking out for themselves.
According to recent proxy statements, Maytag's senior executives stand to reap rich rewards if they lose their jobs as a result of the company's sale. The company has said that management would largely remain in place under the deal, but if a shake-up took place down the road, current senior executives stand to receive a lump sum of two to three years of their annual base salaries and annual and long-term bonuses; a pro-rated annual bonus for the year of termination; plus other pro-rated bonuses, health insurance and retirement benefits.
Meanwhile, Ironwood Capital Management President Warren Isabelle reportedly called Ripplewood's offer "thievery" and said he would vote against it. San Diego-based Brandes Investment Partners indicated that it too would vote its 10.5% stake against the transaction. John Goetz of Pzena Investment Management LLC, which owns more than 1.1 million Maytag shares, has also reportedly expressed a lack of support for the price tag.
All this noise came as labor leaders and Iowa politicians wrung their hands about possible job losses. Shares of Maytag quickly climbed above the $14 mark as rumors of other interested buyers surfaced, and traders began to smell a bidding war.
At the forefront of the rumors stood Haier, the Chinese appliance maker that joined with another group of buyout mavens in an attempt to elbow Ripplewood out of the deal. Despite the higher bid, there is still no guarantee that shareholders will be satisfied with $16. Furthermore, a Chinese buyer could be even more distasteful on Iowa's political scene, since the implication seems to be that local jobs will wind up in Asia.
"I would guess the unions are hostile to a bid from a Chinese manufacturer," Champine says. "Regardless what happens, I think that Maytag has some high-cost U.S. plants that are going to close no matter who owns them."
She thinks shareholders might be inclined to hold out for bids north of $20 a share, particularly because the company has stressed that it doesn't have a cash problem and that it's actually generating more free cash flow than it needs.
"It does make one wonder why they are accepting buyout offers at such a low price," Champine says. "I don't think it's unrealistic that shareholders could reject these offers altogether. With steel prices coming down substantially, with Maytag having a new laundry offering and with Hoover in a desperate attempt to turn its business around, I can see shareholders wanting a price higher than the midteens. But that's going to take a few quarters of earnings improvement."
However, she isn't sure that shareholder groups have the will to stand up to management and reject these bids completely. Eric Bosshard, director of research with FTN Midwest Research, says they do not.
"I think this will be as good as it gets," says Bosshard, who doesn't own shares of Maytag and whose firm has no investment banking relationship with the company. "Shareholders don't have the patience to see this turnaround through under the current management."
