Sirens Sing for Maytag

A third suitor could presage even higher buyout bids.
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Maytag

(MYG)

has already been warned once about talking to strangers.

The appliance maker, which agreed in May to be taken private by Ripplewood Holdings, heard stern words a month later when a consortium including Haier America, Bain Capital and Blackstone Group proffered its own bid. Ripplewood called the competing proposal "disruptive."

Now a new bid from Maytag's longtime rival,

Whirlpool

(WHR) - Get Report

, has emerged, threatening to disrupt the situation further.

Late Sunday, Whirlpool proposed buying Maytag for stock and cash worth about $1.4 billion, or $17 a share. On its face, that tops both Ripplewood's offer of $14 a share and the Bain group's bid of $16 a share.

Maytag said Monday it would explore Whirlpool's proposal, but its board of directors "has not changed its recommendation of the existing Ripplewood-led transaction."

At this point, Ripplewood's offer is the only official deal on the table for Maytag, so management has an obligation to express support for it until due diligence is completed on the other proposals. But several stakeholders have already expressed dissatisfaction with the $14-a-share price tag, claiming it will shortchange investors.

For instance, Ironwood Capital Management President Warren Isabelle reportedly called Ripplewood's offer "thievery" and said he would vote his shares 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 expressed a lack of support for the price.

Morgan Keegan analyst Laura Champine says she doesn't think shareholders will approve Ripplewood's bid when it comes to a vote scheduled for Aug. 19, and Whirlpool's bid only makes a no-vote more likely.

"I don't think the Haier group has given management any assurances that they will try to get a definitive agreement done before the shareholders' meeting," Champine says. "Whirlpool has been pretty clear that they will give Maytag management an opportunity to disavow the Ripplewood deal."

While Champine says the Whirlpool offer poses an attractive alternative for Maytag investors, she thinks that even a $17-a-share price tag is low.

"A strategic buyer like Whirlpool, that stands to benefit from the synergies they would enjoy by merging with Maytag, could value the company at prices that are substantially higher than $17 a share," says Champine, who does not own shares in either company and whose firm has no investment banking relationships with them. "I think you can get to a share price of $25."

By reducing purchasing costs alone, Champine says, a merger with Whirlpool could double Maytag's profitability. Furthermore, she says, synergies could reduce overhead expenses and enhance product development.

Prudential Equity Group analyst Nicholas Heymann said in a research note, however, that acquisitions made by appliance makers to expand brand portfolios have a bad history. He cited Maytag's own acquisition of Amana in 2001 that failed to help its market share in refrigeration products.

He said Whirlpool's sudden interest in Maytag looks like an effort to preserve its own competitive position.

"Given that

Maytag contacted 36 potential buyers between May 19 and June 17,

Whirlpool's emergence now likely underscores the defensive nature of

its interest to prevent a stronger international competitor from emerging," said Heymann, who doesn't own shares of either company and whose firm has no investment banking relationship with them.

Also, Whirlpool's offer could face antitrust scrutiny, since the combined company would have roughly 70% market share of the washing machine and dryer market in the U.S. Ripplewood's proposal has already passed muster with federal regulators.

Still, the fact remains that Ripplewood's offer for Maytag looks increasingly low, and it could be forced to enter a bidding war in order to win its prize.

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 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.

After that disappointment, shares of Maytag dropped below the $14 mark for the first time in more than a decade, causing investors to question whether that is really a fair price for the company.

In Monday trading, Maytag shares were recently up $1.88, or 12.2%, to $17.33 on the announcement of the third bid.

"This transaction will provide Maytag shareholders with superior value compared to the current offer," Jeff M. Fettig, Whirlpool's chairman, president and chief executive, said in a statement. "Equally important, the combination fits Whirlpool's strategy and capabilities, will create strong value for our shareholders and provide direct benefits to consumers and trade customers."