Maytag To Buy Amana For $350M

NEWTON, IOWA — The consolidation that has hit major appliance retail shifted to manufacturing last week with the announcement of Maytag's planned $350 million acquisition of Amana Appliances.

The blockbuster deal, which is set to close in the third quarter pending regulatory approval, will inexorably alter the majap landscape by reducing the pool of full-line domestic white goods manufacturers from five to four. Fifth-ranked Amana will then join a Maytag brand wagon that also includes the Jenn-Air, Magic Chef and Admiral nameplates, while its $900 million in annual revenue will help narrow the market share gap between third-place Maytag and GE Appliances, the No. 2 appliance player behind Whirlpool.

Industry observers had anticipated a vendor contraction given the sluggish selling environment, increased offshore competition and margin erosion in the wake of a costly battle for volume. While Maytag had been the rumored target of a takeover last year by Electrolux, whose Frigidaire unit is fourth in the majaps stakes, Amana was the weakest link in the supply chain with an estimated 4 percent of white goods sales. As Maytag's interim president/CEO Len Hadley noted in a conference call after last week's acquisition announcement, Amana is only marginally profitable and has suffered both earnings and market share deterioration in the four years since it was acquired by Goodman Global Holding Company from Raytheon Corp. for $750 million.

Nevertheless, the fit between the two companies, as outlined by Hadley, is like hand in glove, with Amana filling key gaps in Maytag's portfolio. Most notable is refrigeration, a classification that Hadley conceded is Maytag's weakest product category and Amana's core competency. "Strength in refrigeration is critical for strength in appliances, and its revenue is the cornerstone for dealers," he said, noting that Amana's premium brand proposition in refrigeration would complement Maytag's strength in laundry and Jenn-Air's clout in cooking.

Amana can also fill the breech in Maytag's distribution to independent dealers, a channel that Hadley acknowledged has been unloved of late. "Amana will give us more flexibility and opportunity in brand and channel management," he said. "It continues to be very strong with independent dealers as retail consolidation has changed the industry. We used to share lots of independent dealers before the big box stores became so important to this business."

What's more, Amana brings to the table a hefty private label program in Kenmore refrigerators, supplanting Maytag's own OEM business which went by the wayside with the loss of Montgomery Ward, Hadley said.

Tina Settecase, VP/general merchandise manager of Sears' home appliance, said she expects her company's business with both vendors to carry over to a post-merger Maytag. "Both are key partners for us, although OEM is one area that Maytag has not explored very effectively. It will be interesting to see if that changes, although we are assuming our relationships with both will translate over to Maytag."

From her perspective, the buyout won't significantly alter the appliance playing field. "Maytag would still be the No. 3 player and will still have to try harder," Settecase said. And despite the possibility of industry overcapacity as factory shipments continue their decline, she believes that further vendor consolidation is unlikely. "The industry is pretty consolidated now. You can never say never, but I'm not sure how much further you can go."

The impact of the deal may be more profound for the MARTA Cooperative of America, whose business in Amana products is three times the company's national share. Executive director Warren Mann said that relationship may be showing signs of strain after Amana's recent return to Best Buy and its rumored talks with Lowe's. Whether Maytag re-tunes Amana to the independent channel, he said, remains to be seen.

In the meantime, Maytag at the very least will be less lonely. Besides plugging holes in it's armor, the added scale that the acquisition brings is also expected to yield greater operational efficiencies in sourcing, manufacturing, logistics, customer support and international sales. In addition, Maytag will be the beneficiary of Goodman's two-year, $100 million investment in market research and product development for Amana, which led to new bottom-mount refrigeration platforms, super-capacity ovens and stainless steel tub washers.