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Whirlpool Will Buy Majority Stake in Indesit

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In a recent turn of events in the Indesit M&A saga, Whirlpool has announced a binding agreement to buy a majority stake in the Italian company, which should be finalised by the end of 2014.

What’s in it for Whirlpool?

In Western Europe, Whirlpool outperformed Indesit over the 2008-2013 period but at the same time did not manage to post a particularly upbeat performance. In Eastern Europe, on the other hand, Indesit performed better than Whirlpool, helped by strong growth in Russia, Indesit’s main market in the region. Both companies heavily overlap in Europe, with Whirlpool commanding a stronger position in the Nordic markets and Indesit in the PIGS, but Indesit’s volume sales in the region are more than one and a half times greater than Whirlpool’s.

Whirlpool versus Indesit: Volume Sales Performance in Western Europe 2008-2013

Indesit 1

Source: Eurmonitor International

Whirlpool will nevertheless benefit from Indesit’s strong presence in Turkey, where its volume sales are almost six times larger, and Russia, where they are 11 times larger. In terms of categories, Whirlpool and Indesit also strongly overlap, with home laundry being the strongest category in Europe for both companies, but with Indesit posting a significant advantage over Whirlpool in this category and refrigeration, two areas in which Whirlpool could see benefit from the deal.

Production, nevertheless, could have been the real bait for Whirlpool. At the moment, Whirlpool is not able to satisfy all of its European demand via its European production. In particular, in Europe, Whirlpool has manufacturing facilities in Poland, France, Germany and Italy, with Italy accounting for most of this production (which is even higher than Indesit’s in Italy). With Italian demand slumping and with no sign of a recovery anytime soon, Whirlpool does need to think about European restructuring if it wants to maintain its competitiveness in the region. Accessing Indesit’s home laundry and refrigeration manufacturing plants in Russia and Turkey could be a good way forward.

Whirlpool versus Indesit: Volume Sales Performance in Eastern Europe 2008-2013

Indesit 2

Source: Euromonitor International

What did Whirlpool Have to Lose if it did not Win the Contest?

Whirlpool lost first place in the global major appliances market to Haier in 2012 following its acquisition of Fisher & Paykel. In Western Europe and Eastern Europe, Whirlpool ranks fifth and seventh,respectively, in major appliances, just behind Indesit in Western Europe but well ahead of Haier in both regions. It was likely that the US giant was not willing to relinquish its stronger foothold in Europe so easily. If Haier, which at some point also announced its interest in Indesit would have been successful, it would have become the leading player in major appliances in Eastern Europe with close to a 14% volume share and in Western Europe it would have jumped to third place ahead of Electrolux and Whirlpool with an 11% volume share, quite close on the heels of Turkish player Arçelik, another once potential candidate.

What’s in it for Indesit?

It was clear that neither Haier, nor Meiling, the other Chinese company who finally got in the race instead of Haier would have done much to help Indesit move away from the mid-income trap in which it finds itself. Whirlpool and Electrolux, on the other hand, both have a stronger reputation for high quality and innovative products thanks to well-established mid to premium brands and the European know-how to push Indesit forward.

With Whirpool taking out the winner envelope, however, Indesit now becomes part of the new global leader in major appliances, maintains its leading position in Eastern Europe and becomes the second player in Western Europe.

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