World number two home appliances maker Electrolux AB (ELUXb.ST), looking to further boost its presence in emerging countries and offset weakness in mature markets, has agreed to buy market-leading Chilean appliance company CTI (CTI.SN).
Sweden's Electrolux has been battered by fears of a return to recession in North America worries about the impact of the debt crisis in Europe. Its shares price has sunk since weak second-quarter results last month.
The company is not growing its earnings at a dramatic pace by these acquisitions, but price tags seem reasonable and the strategic importance should not be underestimated, Danske Markets said in a note.
Electrolux said the enterprise value for the deal, which comes after the recent purchase of Egyptian appliance maker Olympic Group (OLGR.CA), was 4.4 billion crowns ($691.5 million).
This acquisition builds on the strengths of Electrolux and CTI and provides significant growth opportunities that would be difficult to achieve by either company individually, Electrolux Chief Executive Keith McLoughlin said in a statement.
Electrolux said CTI makes fridges, stoves, washing machines and heaters and has 36 percent of the Chilean market. It also holds a leading position in the Argentinian market.
Analysts noted that Electrolux was putting its cash to work via acquisitions rather than keeping money in the bank.
We believe that post this acquisition, the group's room to do further deals will be limited, said Unicredit in a research note.
Electrolux had been in talks for bankrupt South Korean group Daewoo, but has stopped those negotiations.
Electrolux shares have fallen 47 percent so far this year, underperforming the Stockholm benchmark index, .OMXS30 which is down 22 percent, and the STOXX Europe 600 personal and household goods index, .SXQP which is down 9 percent.
The world's biggest appliances maker, U.S. group Whirlpool (WHR.N), has shed 36 percent of its market value this year.
Under the deal, the Swedish company will buy 64 percent of CTI shares owned by Sigdo Koppers and certain associated parties. Electrolux will also begin a cash tender offer to buy 100 percent of the outstanding shares of CTI at 34.87 Chilean pesos ($0.074) per share.
Electrolux will also begin a cash tender offer for all of the outstanding shares of CTI's subsidiary, Somela, SOM.SN also listed on the Santiago Stock Exchange, for 325 pesos per share. CTI has committed to tender its 78.5 percent stake.
CTI's net income from the sale of its shares in Somela will be distributed to its shareholders through a pre-closing dividend of 4.39 pesos per share.
As part of the transaction, CTI will also pay a pre-closing dividend to its shareholders of 1.63 pesos per share.
In total CTI's shareholders will receive 40.90 pesos per share, Electrolux said.
In Chile, CTI has the Fensa and Mademsa brands while in Argentina it has the GAFA brand. Somela is the largest supplier of small domestic appliances in Chile.
Together we will generate significant revenue synergies and cost synergies relating to purchasing and production, McLoughlin added.
($1 = 6.363 Swedish Kronas)
($1 = 468.200 Chilean Pesos)