Qingdao-headquartered Haier Group Corporation has became the latest Chinese firm to make an investment down under, shelling out between NZ$80 million and NZ$82 million ($49 million to $51 million) for a 20% stake in Fisher & Paykel Appliances.
Haier, which earned $17.5 billion of revenues across products in 2008, will have exclusive marketing and distribution rights for the Fisher & Paykel range of appliances in China. Haier was advised on the investment by Morgan Stanley.
The New Zealand-based firm, which sold NZ$1.2 billion worth of white goods in the most recent financial year, will have the same rights for Haier-branded products in Australia and New Zealand.
The investment by Haier is part of a comprehensive recapitalisation plan. Fisher & Paykel is raising NZ$189 million of new capital from a combination of sources, in sequence: first, Haier will subscribe to NZ$49 million worth of shares, representing 17% of in the company at a price of 80 New Zealand cents per share; then, existing shareholders including Haier will be offered shares totalling another NZ$143 million in the ratio of one share for every share held at a price of 41 New Zealand cents per share; finally, Haier will be issued up to a further NZ$12 million of shares, at the same rights issue price, to ensure it owns 20% of the expanded share capital.
The rights issue is fully underwritten by Deutsche Bank and First NZ Capital Securities and partially sub-underwritten by Haier.
On May 27, Fisher & Paykel declared results for the financial year ending March 31 and simultaneously announced that it was raising new equity. The company has been moving manufacturing from high cost locations, such as Brisbane, to Thailand and Mexico to stay competitive and contain costs. However, it has been struggling and its performance was further adversely impacted last year by the financial crisis, which resulted in slower consumer demand. Fisher & Paykel managed to make a profit after tax of NZ$33.8 million in the latest financial year, but after accounting for one-off costs, some related to the relocation, it was in the red to the tune of NZ$95.3 million.
Proceeds from the capital-raising will be used to retire NZ$165 million of debt. Fisher & Paykel has also renegotiated a debt package of NZ$575 million, which comprises term loan facilities, working capital, a letter of credit facility and an amortising facility.
Along with its investment, Haier has negotiated the right to nominate two directors to the Fisher & Paykel board. The two firms will also co-operate in product development, sourcing, manufacturing and marketing.
This is not the first time Haier has sought to expand globally but the specifics of the current deal suggest that the Qingdao-headquartered firm has decided to proceed with caution.
In 2005 Haier teamed up with private equity firms Bain Capital and Blackstone Group and entered a bidding war for Iowa-based Maytag Corporation. Maytag, owner of the Maytag and Hoover brands, was at the time a $4.7 billion turnover company. Maytag was already in discussions regarding a takeover with a consortium led by private equity investor Ripplewood, who was offering $14 per share. The Haier consortium put in a higher bid of $16 per share, on the back of financing to be provided by Merrill Lynch.
But a competing offer from Whirlpool Corporation of $21 per share, valuing Maytag on an enterprise value basis at $2.7 billion, saw both private equity-backed consortiums withdraw their bids.
Last year Haier confirmed that it was examining the option to buy General Electric's appliances business, which was expected to be a multi-billion dollar deal. That deal also did not progress. Haier's cautiousness in committing just around $50 million to the New Zealand deal could reflect a decision to conserve capital in light of the difficult operating environment prevailing in the white goods industry. Or it could suggest Haier believes better opportunities will present themselves. Whatever the case, Haier's cautiousness cannot be faulted.
Fisher & Paykel shareholders applauded the recapitalisation plan, pushing up the share price, albeit marginally, to NZ$1.06 over the past two days of trading. Haier's shareholders were more guarded and the shares lost 1% to close at HK$1.15 (15 cents) on Wednesday. The Hong Kong stock market was closed for a holiday on Thursday.