Monday, 26 November 2012

Nov. 25, 2012, 8:09 p.m. EST

China’s Haier riding a New Zealand buyout

Haier on betting overseas deals to keep growth alive

By He Chunmei
BEIJING ( Caixin Online ) — Haier Group’s successful takeover of New Zealand manufacturer Fisher & Paykel Appliances has stoked the market with fresh confidence in China’s largest white goods manufacturer.
The deal sealed in early November also bought time for Haier HK:1169 0.00%  as it strives to maintain growth momentum in an increasingly competitive environment for makers of washing machines, refrigerators, stoves and air conditioners around the world.
Several rounds of buyout negotiations ended when Fisher & Paykel’s NZ:FPA -0.39%  shareholders agreed to sell more than 70% of the company to Haier, which already controlled about 20%, for 927 million New Zealand dollars ($760 million), or NZ$1.28 a share NZDUSD +0.09% .
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With a majority stake in hand, Haier said it will launch a forced buyout of minority shareholders and grabbed the remaining stakes of the company which, like Haier, makes home appliances at factories around the world.
In initiating the successful takeover, Haier officials were apparently eyeing more than additional manufacturing space: The plum parts of the deal, say industry analysts, are Fisher & Paykel’s research and development division and its global sales network.
Analysts say Haier was attracted to the New Zealand company’s technological capacity and global customer base — business factors that could help the Chinese company maintain growth.
Haier’s revenues increased to 151 billion yuan ($24.2 billion) last year from 100 billion yuan USDCNY -0.0851%  in 2004. The company last year accounted for 7.8% of all large, household appliance sales in terms of revenues around the world, according to the market data watcher Euromonitor.
It’s also No. 1 in China for refrigerator and washing machine sales, although of late it’s faced fierce competition in the TV and air conditioner business.
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In recent years, Haier built production and marketing facilities in the United States, Malaysia, Indonesia and the Philippines. Sales in Europe rose 15% in the first half of this year from the same period 2011.
Haier’s overseas sales account for about 26% of total revenues. But appliance industry analysts aren’t happy. Liu Buchen of Kuafu Enterprise Management Consultancy, for example, says the company would be better off with a 50-50 domestic-foreign sales split.
Meanwhile, Chinese rivals including Midea Group and Gree Electric Appliances Inc. CN:000651 +0.40%  have seen sales surge much more rapidly, with each engineering a sales leap to more than 100 billion yuan last year from about 20 billion yuan in 2004.
Market watchers say Haier is under pressure to keep up with Midea and Gree at home, and compete against powerful multinationals such as Samsung SSNLF 0.00%   KR:005930 +0.93%   and Siemens DE:SIE -0.13% SI -0.27% in other countries.
Liu said low brand awareness, technological limits and a lack of attention-getting breakthrough products have hurt Haier’s internationalization effort. In recent years, “Haier had been quite worried” about its ability to compete, he said.
Buying a foreign company such as Fisher & Paykel offered Haier “the only way out,” said a home appliance industry insider.
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Business abroad

Haier has been moving aggressively into overseas markets since at least late 1990s, when it built a manufacturing facility in the United States. The company later launched several unsuccessful attempts for overseas acquisition, including its 2004 proposal to buy U.S. home and commercial appliance company Maytag Corp., a bid that lost to Whirlpool Corp. WHR -1.69%  
In 2009, Haier acquired a 20% stake in Fisher & Paykel for $28.5 million. The Chinese investor also got two of the eight seats on the company’s board of directors.
Haier helped the New Zealand company break into China’s high-end white goods market, while Fisher & Paykel gave its Chinese partner a hand with expansion projects in Australia and New Zealand, as well as with development of a new washing machine motor.
Last year, Haier acquired Panasonic Corp.’s PC 0.00% JP:6752 -0.99% Sanyo Electric washing machine and refrigerator units in Japan and Southeast Asia. As a result, Haier said, January-April sales in Japan increased 40% year on year.
Haier’s next overseas move was to offer Fisher & Paykel’s main shareholders a buyout offer.
Established in 1934, Fisher & Paykel sells high-end appliances in 60 countries and regions. But business has suffered since the 2008 global financial crisis and the company’s debts have risen.
Haier’s initial offer in September of NZ$1.20 per share was rejected by Fisher & Paykel’s board the next month. After Chairman Keith Turner said a fair valuation would be between NZ$1.28 and NZ$1.57, Haier raised the offer to NZ$1.28.
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Fisher & Paykel’s fund manager Allan Gray Pty. Ltd., which owned about 17.5% of the shares, supported the bid, as did institutional investors ACC, AMP and Harbour Asset Management. Haier thus won support from the four, largest shareholders and nabbed the deal.
Haier is thus taking over manufacturing bases in New Zealand, Italy, Thailand, Mexico and the United States. Moreover, despite slowing business, Fisher & Paykel remains a profitable company: It reported a net profit of NZ$33.5 million on sales of NZ$891 million for the fiscal year ending March 31.
“Acquiring Fisher & Paykel will help Haier build an upstream industry chain,” said analyst Liang Zhenpeng, who said appliance parts manufacturing has been a weakness for the Chinese company. Most of China’s domestic home appliance manufacturers reply on chips and core parts made in other countries.
“Haier faces urgent tasks, including the need to develop its own core parts, building an upstream industry chain and improving product technology and quality,” said Liang.
Haier Chairman Zhang Ruimin in recent years has repeatedly cited an interest in shifting the company’s strategic interests to services from manufacturing.
There has been speculation that Haier might gradually start outsourcing its manufacturing business to companies such as BOE Technology Group Co. and electronics giant Foxconn. Other industry insiders have said they expect Haier to start servicing international appliance giants.
Haier launched last year a restructuring to integrate logistics, services and home appliance production into its two listed companies, Haier Home Appliances and Qingdao Haier Co. CN:600690 -1.20%
But analysts such as Liu doubt Haier will switch to the service sector entirely, calling such a move too radical.
“Giving up production and only focusing on sales and services would lead to a lot of trouble for Haier,” he said.
Liang agreed. “Haier would not dare withdraw from manufacturing,” he said. “Actually, its acquisitions of Sanyo and Fisher & Paykel have shown that it wants to repair weaknesses in design and research through mergers and acquisitions.”
 
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