M&A

Taking the Haier bid

Whirlpool targets washers made in China, as Haier moves for GE unit

Zhang Ruimin w

American breakthrough: Haier’s founder Zhang Ruimin

“The washing machine has changed the world more than the internet has”. That’s one of the bolder claims in Ha-Joon Chang’s 23 Things They Don’t Tell You About Capitalism. The Korean-born economist argues that the advent of white goods (here represented by the washing machine) has prompted far greater social and economic change than the invention of the internet.

Continuing in his mission to debunk what he sees as the myths of liberal economics, Chang dismisses the notion of a free market by opining that countries that champion the concept often protect their companies against international threats. Far from decrying this protectionism, Chang encourages it.

Chang’s 23 Things might strike a chord with US washing machine manufacturer Whirlpool at the moment: the firm has petitioned for increases in anti-dumping levies on imports from LG and Samsung, whose cheaper products are threatening the American brand’s home market.

Whirlpool’s petition, issued in December last year, suggests raising the duties on the two Korean brands from 68.92% to 109.04%. The request comes less than three years after the US Commerce Department levied anti-dumping charges on LG and Samsung washing machines made in Mexico and South Korea.

The latest targets for additional duties are produced in China. “Simply put, beginning in 2013, Samsung and LG replaced their dumped washers from Korea and Mexico with dumped washers from China,” claims Whirlpool’s president, Marc Bitzer.

The threat of another round of duties has drummed up concerns in China that, if upheld, the newer tariffs will encourage the Korean pair to move its production elsewhere, hurting the local economy.

According to China Daily, industry insiders suspect that China is more of a target for the proposed levies than Samsung or LG.

China’s Ministry of Commerce announced at one of its regular press conferences that the exports of LG and Samsung washing machines were worth $1 billion, so it is watching the situation closely.

Shen Danyang, a spokesperson, said: “The Ministry of Commerce believes that the complainant and those involved in the export of the machines should engage in dialogue to resolve one another’s concerns. Simply resorting to trade protection measures is not beneficial to cooperation between the two sides and is damaging to the interests of Chinese exports to America.”

The impact of higher tariffs could ricochet across the industry, with China Business Journal warning that the levies will have a “butterfly effect” on firms not directly affiliated with either of the South Korean companies. The more speculative concern is that action from US regulators might encourage similar cases against other white goods made in China.

Chinese manufacturers are no stranger to anti-dumping levies: between January and November last year there were 58 anti-dumping cases filed against them. Xu Dongsheng of the China Household Electrical Appliances Association (CHEAA) argues that they are often a response to the growing popularity of Chinese brands overseas: “They [the US companies] try to resort to anti-dumping measures and invoke other trade rules to protect their position in the US market. They accuse foreign companies of dumping without concrete evidence.”

But others sought to downplay the potential for disruption. Hisense Group, a Shandong producer of home appliances, told the China Daily that the impact would be limited as the investigation is aimed at South Korean brands, and not the industry as a whole.

Another Chinese manufacturer that seemed unperturbed by the repercussions of sanctions was Haier, which told the same newspaper that it “always adheres to the principle of honesty and complies with local laws and regulations wherever it operates”.

As of last Friday, however, Haier’s operational scope was expanding further into Whirlpool’s home territory. On January 15 it signed a deal to purchase the home appliances division of General Electric for $5.4 billion – the third most expensive acquisition of an American firm by a Chinese company to date, and the seventh overseas purchase in Haier’s portfolio. Haier is buying a long-established business that makes refrigerators, freezers, clothes washers and dryers.

Despite being one of the smaller divisions in the GE conglomerate, the unit is the second largest in appliance sales in the US, taking 10% of the market. First place belongs to (guess who) Whirlpool.

Much like Whirlpool, GE has championed domestic production: 80% of its appliances are made in the US and 88% of its sales are made in North America. For Haier, which currently reports 1% of its sales in the US, that looks like an opportunity. It has been trying to get into the American market for more than a decade. In 2000 it opened a factory in South Carolina and in 2008 it placed an unsuccessful bid for the same division that it is now buying.

In its purchase Haier trumped local rival Midea, which also submitted a bid. Guangdong-based Midea vies with Haier for leadership in home appliances in the Chinese market (Euromonitor says Midea has 17% of total sales compared with Haier’s 8%). But the acquisition of GE’s unit will help Haier to grow internationally with a brand name more recognised than its own.

The Haier-GE deal is one of a number of global takeovers by Chinese firms so far this year, alongside the $3.5 billion acquisition of Legendary Entertainment by Dalian Wanda (see more this week) and the $1 billion bid for KlaussMaffei by ChemChina (the largest purchase yet of a German company by a Chinese one).

The GE transaction follows a busy 2015 when Chinese FDI in the US reached a record $15.7 billion, up 30% from 2014, according to Rhodium Group. The composition of last year’s investment was considerably more diverse than before, Rhodium notes, including real estate (Anbang’s acquisition of 717 Fifth Avenue), financial services (Fosun’s takeover of Ironshore Insurance), ICT (the acquisition of Integrated Silicon Solutions by a Chinese consortium) and health and biotech (Hepalink taking control of Cytovance Biologics).

Another trend: around two thirds of total investment went into services, up from just 14% in 2009.

“The main reason for the Chinese firms’ buying spree is to get the brands, technologies and talent they lack, to capitalise on future waves of growth at home,” the Economist reported last week.

Haier will certainly want to capitalise on American consumer confidence in the GE Appliances brand, which it has licenced for a 40-year period as part of the deal. It will also be interested in selling more of its own products through GE’s distribution channels.

But in Haier’s case the technology and talent part of the equation may be less significant than for some of the other acquisitions. It’s already developing a series of ‘smart appliances’ through its U+ Smart Life platform and it looks more likely to introduce that technology in the US, rather than bringing American know-how back to China.

Of course, if more of Haier’s products were manufactured in America, that would be helpful. Cases like Whirlpool’s claim against the Chinese-made washing machines would be more difficult to uphold, too.


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