MAYTAG: TAKEOVER STRATEGIES Harvard Case Solution & Analysis

MAYTAG: TAKEOVER STRATEGIES Case Solution

INTRODUCTION

This case is about Maytag Corporation and their current financial position; they are having difficulties in retaining their position in the market. The Maytag stock price fell by 28% after the 1st quarter of 2005. Maytag need serious help in order to carry out its operations in the future. They hired one investment bank Lazard ltd. to find them parties which can help Maytag during these difficult times.

Maytag was founded in the late 18th century when F.L Maytag begun producing farm implements in Newton, Iowa. Until 1986 he and his team continued to operate as stable company with less volatile cash flows after 1986 till 2003 they opted the aggressive growth strategies of mergers and acquisitions to stand out in a market as a new company, by the end of 2004 they reported sales of $4.7 billion, it has two mainly two segments namely home appliances and commercial products. The segment of home appliances nearly accounts for 94% of the Maytag total revenue.             Over all Maytag is fourth biggest home appliances manufacturer in the United States. The market share of Maytag is 21% the market leader is Whirlpool with the market share of 36%. The industry is very competitive it has always been, the high competitive rivalry is the reason Maytag is giving difficulties in retaining their market share, and their sales are continuously decreasing in every single year which ultimately affected its share price. Increasing Foreign competition is another reason the local companies are having difficult times because foreign companies have low cost production facility also, per unit cost is significantly lower than the local market participants like Whirlpool and Maytag.

Now in the current situation three different groups emerged the Ripple wood (holding company, Whirlpool the main competitor of Maytag and lastly the Haier group with brain and Blackstone capital) these all parties’ wants to undertake transaction with Maytag. Ralph Hake the Ceo of Maytag wants to decide the best financial and strategic buyer for its shareholders and the future of Maytag.

REVIEW THE HISTORICAL PERFORMANCE OF MAYTAG. WHY IS THIS FIRM A POTENTIAL TAKEOVER CANDIDATE?

The historical performance does reflects a potential in the Maytag corporation to earn stable cash flows, although the current position of Maytag is not reasonable enough to attract any other party which does not hold a retrospective view back in 2003 the financial performance of Maytag was far better than what it is today, the profitability ratios of Maytag was on the hold and were deteriorating but now after the start of 2005 the profitability declined from 2.66% to 0.66%( net profit margin), the gross profit margin also declined from 17% to 11% in the first quarter of 2005.

The liquidity position is even worse than it was in 2003 such as the current and quick ratios are almost touching the lowest point and their further deterioration will position under a very drastic situation where it won’t be able to pay out its liabilities as they fall due the current and quick ratios in the year 2005 are 1.36:1 and 0.84:1. The quick ratio is reflecting the true cash position of Maytag.

 Furthermore the interest is 1.53:1 which is quite frustrating for existing lenders specially the unsecured ones because by now they know that Maytag soon will become unable to pay out interest from its profits. This type of liquidity and interest cover will also create problems for Maytag in raising additional finance through debt market where no one will finance them on its current financial position.................

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