NEW YORK (AFX) -- Whirlpool Corp. on Friday closed its acquisition of Maytag Corp. -- its main rival in appliances -- in a deal that combines the top two producers of the nearly 18 million laundry machines sold in the in the U.S. last year.
But it's a union of two companies headed in opposite directions.
Despite a commanding market share for the combined entity in some appliance categories, the deal easily passed federal antitrust review earlier this week.
Not only is Whirlpool taking on about $1 billion in Maytag debt; it will assume hundreds of millions in Maytag pension obligations, a growing influx of lower-cost appliances from Asia, and critical decisions about how to position Amana, Jenn-Air and other well-known brands it inherits.
For Maytag shareholders, the $2.7 billion merger, including debt, ends two years of turmoil, restructuring and executive exits. It also pushed the shares to a close Wednesday above $21 -- a level the stock hadn't achieved since the last day of 2004 -- as the Department of Justice announced it wouldn't block the deal.
Whirlpool shares , on the other hand, have enjoyed a 33% gain in that time, as the Benton Harbor, Mich., company absorbed its main rival and beat back competing bids for Maytag from Chinese manufacturer Haier and private-equity group Ripplewood Holdings.
In the end, what mattered was that federal antitrust lawyers said Whirlpool could be checked in its price increases by models from General Electric Co., Electrolux and Asian manufacturers, and, to a lesser extent, that the merged company would produce more savings than a struggling Maytag could on its own.
The combined company would make three out of every four top-loading washers in North America, or 80% of the washers sold, according to Prudential analyst estimates.
Whirlpool sells products under the Whirlpool, KitchenAid, Estate and Roper brands. Maytag's brands include Maytag, Amana, Admiral, Performa, Jenn-Air and Magic Chef. The two manufacturers, along with GE , Electrolux , LG and Bosch, also make appliances for Sears , all under the Kenmore name.
Whirlpool has been a much more profitable company than Maytag, according to Morgan Keegan analyst Laura Champine, because it produces three times the annual revenue of Maytag despite having an identical manufacturing footprint in North America.
Analysts said Hoover, Maytag's struggling floor-care unit, will likely be sold and are awaiting updates from Whirlpool on how it plans to position the enlarged pool of competing brands.
'Specifically, we would like additional detail on how the brands will be arranged in order to be mutually complementary and avoid overlap,' according to David MacGregor, analyst at Longbow Research.
The relatively upmarket Jenn-Air could address what has been a gap in Whirlpool's kitchen lineup, and the Amana brand could boost Whirlpool's refrigeration lines, according to MacGregor. He added that beyond Maytag's Neptune line of high-end laundry machines, the company has had little success in premium machines. Whirlpool could move the rest of Maytag lines to a middle-range prices and position Whirlpool models to attract higher-paying buyers.
One unknown is what will happen with Home Depot stores, which accounted for 14% of Maytag sales in 2005, but which stocks no Whirlpool appliances, except in its small Expo chain.
'The home center is light years behind its competitor Lowe's in merchandising of major appliances,' according to MacGregor.
'By our assessment, it makes little sense to spend a lot of money rebuilding' Maytag brands only to have Home Depot treat them as a commodity.
Sears, Lowe's , Home Depot and Best Buy , account for about two-thirds of all U.S. home-appliance sales. Early in 2005, Best Buy stopped selling Maytag laundry products in favor of more LG appliances from South Korea, which Home Depot also sells. Samsung has also had success in selling at Lowe's and Best Buy.
Those relatively recent entrants, along with GE and Sweden's Electrolux, would be able to curb Whirlpool attempts to raise prices by boosting production, Department of Justice lawyers said.
'The combination of strong rival suppliers with the ability to expand sales significantly and large cost savings and other efficiencies that Whirlpool appears likely to achieve indicates that this transaction is not likely to harm consumer welfare,' according to a Justice Department announcement.
But Prudential analyst Nicholas Heymann, who was surprised by the antitrust clearance, reminded clients in a note Wednesday that Whirlpool also faces a large financial hurdle in taking on Newton, Iowa-based Maytag, as well as the challenge of reviving its brands. Maytag's 'market share has never been lower than today over the past decade in virtually all of its appliance product lines, nor has the company's financial condition ever been as leveraged as it is today.'
There should be little difficulty in blending Maytag and Whirlpool corporate cultures, according to the editorial page of Iowa's largest newspaper, the Des Moines Register, which lamented that the deal leaves the state with the headquarters of just one Fortune 500 company, the Principal Financial Group.
'But in today's global economy, there probably could have been no better outcome than for a struggling Maytag to become part of the world's largest appliance company. Bring on the competition now,' the editorial board said Friday in an open letter to Whirlpool. This story was supplied by MarketWatch. For further information see www.marketwatch.com.