According to reports an Iran-based household and kitchen appliance manufacturer is one of only two suitors picked to bid for the troubled Daewoo Electronics.
Entekhab Industrial Group, which makes fridges and cookers and other white goods, is bidding against the Swedish giant Electrolux for the control of the debt-ridden Daewoo Electronics
Woori Bank, which is acting for the creditors-cum-shareholders, expressed confidence that a final deal could be signed by August.
According to the press release from Woori Bank, the preferred bidders will soon start evaluations and negotiations to complete the deal around the end of August.
Daewoo Electronics’ creditors own 97.5 percent of the company, which is comprised of:
Korea Asset Management Corporation ““ 57.42%
Korea Exchange Bank ““ 6.79%
Shinhan Bank ““ 5.75%
Woori Bank ““ 5.37%
Seoul Guarantee Insurance ““ 5.23%
Apparently the creditor group terminated sale talks for Daewoo Electronics with Ripplewood and Morgan Stanley without success.
Details of the financial package for the buy-out have not been publicly revealed, but, according to local media, the bids for Daewoo Electronics have ranged from 300 billion to 500 billion won ($265 million-$441 million).
The company used to be the jewel in the crown of the failed Daewoo Group and is currently South Korea’s third-biggest manufacturer of household appliances, after Samsung Electronics and LG Electronics.
Previously, other interesting parties, including local cooking appliance maker Tong Yang Magic and a private equity consortium were in the running for the company, but fell by the wayside.
Daewoo Electronics is heavily dependent on exports and, in addition to its domestic rivals, faces tough competition from budget Chinese producers.
Markets Seem To Like The Deal
Fitch Ratings has said today in a press release that the recent announcement that AB Electrolux (Electrolux) has made an indicative bid for Daewoo Electronics Corporation (DEC) has no immediate rating implications, given that any potential deal remains at an early stage.
However, ratings actions could follow as and when the deal progresses and further details are known. Electrolux presently has a Long-term Issuer Default Rating (IDR) of ‘BBB- ‘, Short-term IDR of ‘F3’ and senior unsecured rating of ‘BBB-‘. The Outlook for the Long-term IDR is Stable.
Fitch notes that as there are currently no details on the structure, timing or likelihood of any potential transaction, the agency does not intend to take any rating action at this time. However, Fitch will closely monitor the transaction’s possible evolution and evaluate the impact of any changes to Electrolux’s business and financial profile. Rating actions could occur if the transaction is executed, depending on the price and financing of the deal.
Fitch revised Electrolux’s Outlook to Stable from Negative in February 2010, reflecting an improvement in the company’s financial position during 2009 following good underlying trading. However, as noted at the time, Fitch expects that shareholder pressure may build on Electrolux during 2010 to deploy a portion of its sizable cash balances (SEK9.5bn at FYE09), either through acquisitions or increased shareholder returns. Fitch would likely view negatively any significant cash-funded acquisitions or shareholder returns, especially if they were undertaken while market conditions remain fragile. Electrolux’s key end-markets remain weak, notably European household appliances, where volumes have fallen for nine consecutive quarters.
Home Turf
It seems very unlikely that LG or Samsung will be terribly happy with deal if it all goes to plan for Electrolux. Both Korean companies have stated that they want to become the world’s number one and, as we all know, only one company can be the world’s number one, a crown that was stolen from Electrolux when Whirlpool’s purchase of Maytag was approved a few years ago.
It seems Electrolux wants that crown back and will, most probably, become the world’s number one yet again if the deal is done with Daewoo.
Asides from the fact that this will make either of the other two Korean companies aspirations of becoming the world number one a huge bit harder, if not outright impossible, it also takes the battle right to their doorstep. A tactic which Samsung especially has already employed with its recent purchase of Polish production facilities.
Having to fight for market share in the home markets as well as in the foreign ones may well prove to be a challenge for both LG and Samsung who, in the Far East at least, appear to be fairly dominant. Electrolux arriving with all it’s resources, knowledge of appliances, vast range of products and a brand name that is recognised in that region of the world may well give LG and Samsung a problem.
It is widely expected that there will be some form of war in the industry over the next couple of years, if it takes that long and, it looks as if this is just another piece of that tussle for top slot and long term survival.