3rd UPDATE:China's Haier To Take 20% Stake In F&P Appliances
27 May 2009 - 2:38PM
Dow Jones News
China's Haier Group will purchase a 20% stake in New
Zealand-based Fisher & Paykel Appliances Ltd. (FPA.NZ) in a
move that will help raise the Chinese whiteware manufacturer's
profile in the global home appliances market and bolster both
firms' ambitions to grow outside of their countries.
In separate statements Wednesday, the companies said the deal
will give Haier exclusive rights to sell Fisher & Paykel's home
appliances in China, while its New Zealand counterpart can
exclusively sell Haier's products in Australia and New Zealand.
The partnership "gives us a unique opportunity to fully
globalize Fisher & Paykel Appliances and really drive our
global expansion into parts of the world that had previously been
very difficult for us to penetrate," Fisher & Paykel Chief
Executive John Bongard said in a conference call with analysts.
"A major benefit is the access it gives us to the huge and
growing China market, which would have been extremely difficult for
us to crack on our own."
Pressured by fierce competition and rising costs in the home
market, Haier, China's biggest home appliance maker, has adopted a
proactive approach on overseas expansion in recent years to drive
future growth. But it has encountered stumbling blocks in
penetrating the important U.S. market. It lost to Whirlpool Corp.
in acquiring U.S. appliance maker Maytag Corp. in 2004 and last
year it dropped a bid for General Electric Co.'s (GE) appliances
unit due to the global economic slowdown.
In 2007, Haier made small acquisitions for individual factories
in markets such as India and Thailand as part of its strategy to
base production closer to its customers.
Haier said its purchase is a strategic decision and can help the
firm explore the high-end global whiteware market.
"The deal will allow Haier to share the marketing, and research
and development resources of Fisher & Paykel in the high-end
whiteware market," Haier said.
When asked whether it will further increase its stake in Fisher
& Paykel, Haier said it "all depends on market conditions,"
without elaborating.
For Fisher & Paykel, the deal also allows the company to
avoid a potential call on funds from its bankers.
The Auckland-based New Zealand appliance maker said it would
raise a minimum of NZ$189 million through a NZ$46 million initial
placement to Haier Group, and a fully underwritten NZ$143 million
pro-rata renounceable rights issue.
It will then carry out a top up placement to Haier of NZ$12
million to ensure a shareholding of 20%.
Morgan Stanley acted as Haier's financial adviser.
Bongard said work with Haier would begin immediately.
"I expect to see some positive synergies flowing through our
fiscal 2010 year without a doubt, but I would think that fiscal
2011 will even better."
Haier's total investment in the company will be between NZ$80
million and NZ$82 million.
The initial 17% stake taken up by Haier has a placement price of
NZ$0.80-a-share, while the NZ$143 million rights issue has an issue
price of NZ$0.41-a-share, the company said.
Deal Well Received
The New Zealand market reacted positively to the news of the
deal, with the Fisher & Paykel Appliances stock trading up 52%
at NZ$1.00 at 0310 GMT, bolstering the benchmark NZX-50 that was up
1.3%.
Hammered by a slowdown in demand, the debt-laden company has
been working on a rescue plan with banks since February.
Forsyth Barr head of research Rob Mercer said it was "long
overdue" for Fisher & Paykel Appliances to have a cornerstone
investor.
"Time will tell as to how earnings will improve as a result of
these changes, but at least the financial risks have been
neutralized. The company can refocus on operating profit, which is
still a concern," he said.
Earlier Wednesday, Fisher & Paykel Appliances posted a net
loss of NZ$95.3 million for the 12 months ended March 31, compared
with a net profit of NZ$54.2 million in the previous year.
While Bongard said profit would improve in the coming year,
largely due to lower one-off costs, he was cautious about the
trading outlook.
"We are expecting a continuation of the soft business conditions
that really hit us very hard and very quickly from October last
year," said Bongard.
The net proceeds from the capital raising are to be used to
reduce debt with the exception of NZ$15 million that will be
applied to the company's finance business, Fisher & Paykel
Appliances said.
The company also said it had reached an agreement for a new
NZ$575 million debt refinancing package for the appliances
business.
"We have emphatically dealt with the capital structure issues
and it really is business as usual in terms of our global
manufacturing strategy," said Bongard.
-By Rebecca Howard, Dow Jones Newswires; 64-4-471-5990;
rebecca.howard@dowjones.com
(Jin Jing and Shen Hong contributed to this story.)
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