F&P to be Ward of Chinese Government. Is NZ next?
Submitted by advisor on Tue, 05/26/2009 - 12:07am.
Bloomberg and New Zealand Herald report that Chinese appliance manufacturer Haier is taking a 20%+ stake in Fisher and Paykel Appliances with a US$25 million investment, roughly putting the total value of F&P at US$100 million. An additional US$100 million is being raised from a rights offer.
See Bloomberg story
See New Zealand Herald story
CORRECTION: Later reports put the Haier investment at between US$49 and $52 million, therefore the company value jumps to $200 million (more or less)
One assumes that Haier's investment is for something more than philanthropy. Italian factories, Mexican factories, New Zealand factories, Ohio factories, Thailand factories....just imagine the thrill at Haier when they hear about the factories they now own 20% of !!! OK, so it's not the factories they want a piece of. Maybe they wanted the brands(F&P, DCS, Elba), or the product lines, the markets share, or the technology.
Fisher & Paykel has an extensive technology sharing agreement as well as a sourcing arrangement with Whirlpool. If conventional wisdom is correct, Whirlpool is as we speak, extricating itself from all of that.
Its distribution is in shambles with reports of DCS disappearing from the floors of dealers around the country.
It must be the brands and perhaps a little technology including products lines that Haier is not yet tooled up on.
So, why wouldn't Haier take a controlling interest? Why only 20+%? It has been said that there are no "major" shareholders of F&P Appliances. A 20% stake might be enough to control the whole shooting match.
If Haier is in control:
Will production be consolidated in China?
Will the F&P, and DCS brands be the trojan horse to insert Haier products into the homes of unsuspecting North Americans et al?
What of the vaunted F&P direct sales force?
Has the sales force lived up to its reputation, or was it simply a hole in which to throw money?
Was DCS destroyed by a blind reliance on direct sales over 2-step distribution, or were there other problems afoot?
What part of the collapse of F&P can be put to the recent acquisitions of DCS, ELBA, and Maytag's Mexican factory.
What part of the collapse was caused by the convulsive global production reorganizations in April 2008 which entailed the simultaneous opening or closing of factories on every continent? At the time of these factory moves we wrote:
No matter the stock price, these are not the actions of a company enjoying unbridled prosperity. There are huge risks associated with opening a new plant in Mexico, shifting lines to the far corners of the earth, depending upon a current and unhappy workforce with firm dates of execution, depending upon a future untrained workforce to quickly ramp up....and doing all of this in so many places and with so many lines simultaneously.
Risk is bad and this is a heaping helping of risk.
See the original ApplianceAdvisor.com story.
The circumstances of the Haier investment does remind one of the 2004 acquisition of DCS by F&P when the scuttlebutt was that DCS had only a few weeks of cash left in the till.
DCS September 2004 Rumor
DCS October 2004 Confirmation
Something Curious About the Transaction ...
The more that comes out about this "transaction" the more interesting it becomes ... the China Tech News portal quotes the following:"Chinese home appliances maker Haier has announced that the company has become a major shareholder of the New Zealand's Fisher & Paykel Appliances via an equity financing program.
Under this program, Haier will invest USD49 million to USD51 million to acquire a 20% stake in Fisher & Paykel Appliances. Upon the completion of the investment, Haier will gain two seats in the board of directors of the company.
By market share, Fisher & Paykel Appliances is the largest home appliances company in New Zealand with market share of 55% in the country and it has 18% market share in Australia. "
I always thought that New Zealand was adamant against allowing a foreign entity a "majority" shareholdership in a Kiwi company ... it appears that some re-evaluation of that stand has occurred !!!
The Best Article on This So Far ...
I just came across probably the most comprehensive explanation of this whole "transaction" ... it is from the Financial Times of London ... instead of giving you a link here are the highlights:
"Haier, the Chinese electrical appliances maker, has agreed to take a 20 per cent stake in Fisher & Paykel Appliances of New Zealand for between NZ$80m and NZ$82m (US$49m and US$51m), the two companies said on Wednesday.
Through the deal, Haier takes a cautious further step towards global expansion. The company, which has a history of growth by aggressive acquisitions in its home market, has not repeated that performance abroad.In 2005 Haier was outbid by Whirlpool for a stake in Maytag, the US appliances maker. Earlier this year Haier said it had given up bidding for General Electric’s home appliances unit because it did not consider itself fit for integrating and running a business in a foreign market yet.Haier’s tie-up with F&P, which has a focus on high-end niche products, allows the Chinese group to expand into higher-priced products in export markets. Haier’s overseas markets have so far been concentrated on the mass market.
For loss-making F&P, the deal is the cornerstone of a recapitalisation package which also includes NZ$575m in new credit lines.
Haier will take two seats on F&P’s board following the investment. The companies said they would also co-operate in product development, sourcing, manufacturing and marketing.Under the alliance, the companies gain exclusive distribution rights for each other’s products in their respective home markets. They also agreed to use each others’ factories to make the partner’s branded products.
Haier was advised by Morgan Stanley."
Haier
They paid too much. As far as Morgan Stanley,the Anderson group advised those bright investors who originally purchased DCS and quickly decided they paid too much. Haier in spite of this deal will probably do ok because of manufacturing costs outside of the US.
There's Another By-Product of This "Investment" ...
Remember when GE originally announced that their Appliance Division was "For Sale" ???
Does anyone think that this "investment" by Haier ... one of the suitors mentioned as seriously interested in certain portions of GE ... changes the whole field of play ??? I certainly do !!!
If GE is still serious about spinning off their Appliance Division I doubt that they would allow Haier to be part of the new configuration of manufacturers they divest themselves to because it would alienate, or even chase, many of the others !!!
Funny how these things work themselves out, eh ???
The Whirlpool Connection ...
Your comment ...
"Fisher & Paykel has an extensive technology sharing agreement with Whirlpool, as well as a sourcing arrangement. If conventional wisdom is correct, Whirlpool is as we speak, getting out of all that."
... is certainly true ... Whirlpool got what they wanted, especially with the "DishDrawers" ... and they have ever to be paranoid that Haier would be hot-to-trot to get their hands on shared technology so as to attempt to compete with Whirlpool ... just look @ what they have orchestrated with Lowes !!!
Fisher & Paykel
Well, obviously this has been a long time coming but hardly unexpected. We have sold F&P for many years and have a close relationship with them. I certainly wish them well as they are important line for us. However, they sure have made some serious mistakes with regards to DCS and locations of factories etc. They have squandered a lot of DCS business by not focusing on it, never programming it at industry shows and just in general relagating it to be the ugly step cousin of the main brand, Fisher & Paykel. Maybe I am too sentimental, but I still wish them the best and hope the deal with Haier doesn't make them into just another Chinese company.
F&P Flops
They have no history or track record of making any good decisions. I wish them no ill will ,however F&P let their ego decide what products were best. They have been wrong and probably will continue down that path .They spent too much on the factory and then up and moved it. Not very bright at all.
F&P
DCS was a well run organization by Surjit. The investment group who bought it had no clue as to how valuable it could have been. Their whole goal was to package and sell it five years later using the DCS funds to make money elsewhere. They sold it to F&P for $28 million less than they paid for it.F&P thought they knew better ,over capitalized their plant and thought they could tell the market what to do. The sales force at F&P did not care one bit about the DCS product. I watched them ignore customers at a KBIS one year spending more time with their blue shirts talking about what to do that night. The DCS legacy left with Surjit or shortly thereafter. The biggest advantage with these nitch companies like DCS was owner passion and knowledge of the business. Investors or larger companies have neither.I think Surjit was the best at what he did. He surpassed others who sell him short to this day.
DCS Acquisition Squandered for Sure !!!
How right you are that Surjit did an excellent job of running DCS and ALMO did a wonderful job of putting them on the map ... then F&P never took the product line to the next step, even though they got exposure on national cooking shows like "America's Test Kitchens" ... F&P was more interested in that mirror faced wall oven and the funky three-burner cooktop they demo'd @ last year's K-Biz ... problem was they never brought them to market !!!
I thought that the DCS cooking line was excellent ... so much so that I put a CT-365 in my own kitchen and love it to this day ... it is the ONLY cooktop that features five (5) burners of equal size which means I get to choose where I put my pots and pans, not the manufacturer !!! GE thought so much of that cooktop that DCS was OEM to the GE Monogram Cooktop !!!
I think spinning off DCS is inevitable ... I just can't think of who might be interested ... ALMO has since taken up handling of Capital, Middleby bought JADE, and everyone else seems entrenched with what the are offering, but you never know ... many of us were surprised when F&P acquired DCS !!!
Yes Sir
During my time at DCS , I certainly experienced the professionalism and business accumen that was practiced by Almo who I regard as the top distributor in the nation. It should not have been a surprise when F&P purchased DCS. F&P did visit us in California in the late 90's looking for a way into the US market while I was with another high end firm. The problem was they were going to change the mindset of the American market , just like their management knew better and was offered a lot of help by US based people to help them in the transition that they ignored. In my opinion they thought they could do better with their own people which is not unusual but in this case was wrong.The world is different today so it would be very hard to repeat what happened back then. The players are still very good but the magic may be different.