When you are in Italy and see the names “Whirlpool”and “Indesit” in the same headline, but because it is Italian you can’t understand the text, you can still easily guesswhat it's about. It was no secret in the appliance community that the Merloni family, who owns Indesit, was rethinking their future. Despite a $3 billion revenue, the company was in trouble. Heavy competition from traditional appliance powerhouses (Whirlpool, Electrolux and BSH) and newer attackers (Samsung, Turlish Arcelik and the no-brand Chinese) as well as typical Italian inertia makes the future of Indesit (but also Italian manufacturing in general) insecure.
And yes, it was true. It was announced that Whirlpool is planning to pay EUR 758 million ($1 billion) for a controlling stake in Italy's leading appliance maker. The deal will be with holding company Fineldo and some members of the Merloni family. As Bloomberg noted, “The deal values Indesit at 66 percent of 2013 revenue. That compares with a median multiple of 87 percent among 21 mergers and acquisitions in the global household appliance industry in the past five years." This can be related to the problems in Italian manufacturing in general.
That Whirlpool was interested came as a surprise, and for good reason. Both companies have a lot of overlapping production facilities in Italy, where Whirlpool has its European headquarters. On second glance, there are other aspects: Indesit is about the same size as Whirlpool’s European operations, so there are large scale advantages, and the Indesit brand is still valuable, mostly in Southern Europe. Indesit is also leading in the UK, after purchasing Hotpoint years ago, and in Russia.
Current challenges for Indesit are the weak European markets and the complications in manufacturing in Italy. Strong bureaucracy and powerful unions drive up costs and there is not much flexibility. In Germany and Poland, workers are much more willing to work to seasonal demand for appliances, and it is almost impossible to lay off workers, and to rightsize production capacity. It gets even worse when you compare to Poland, where most Samsung production takes place. Wages are one-third of Italian levels, and worker mentality is entirely different.
The history of Indesit also shows the complications of Italian industrial culture. The original Merloni company was founded in 1930 by the visionary Aristide Merloni. The company was active in appliances, as well as in heating and ventilation, and was an important supplier in gas burners. In the seventies, after the sudden death of the founder in a car accident, the sons of Aristide could not agree on succession issues, and the company was split into (then) Merloni Termisanitari (now Ariston Thermo), Antonio Merloni (now bankrupt) and Merloni Elettrodomestici. The latter swallowed competitor Indesit in the eighties, after listing on the Milan stock exchange. In 2005 the company was renamed to Indesit, the most well-known brand. Many believe that if the family had kept together and solved their issues, the combination would have had a chance against the competition, and the family business would not have become lost in the global marketplace.
Despite that, Indesit is widely admired for their successful entry in the Russian market. They took over the Stinol brand in the nineties and upgraded the production facilities there. Also, Indesit is currently working on a totally new oven platform, named Materia.
For Whirlpool, the Indesit brand might solve some well-known problems. The company has wrestled with their branding since entering the European market in the eighties. They took over the appliance business from Philips Electronics, who gave them two brands: German Bauknecht and Italian Ignis. But Bauknecht always has been less prestigious than German competitors; Bosch, Siemens, Miele and AEG, and Ignis was too small. Second, customers had trouble imagining what an American brand would mean in the appliance market. Third, the European marketplace is highly fragmented, into more than 30 countries, and each of them needs a separate market plan. It can take years before all these plans are written and executed.
So the popular Indesit brand, which is really widely known in the value-for-money segment all over Europe, might solve a part of this problem. In fact, onemight expect the Whirlpool brand itself to move into the midrange market. Another sneaky problem is that Whirlpool is the main supplier for Ikea Europe, and at cutthroat prices. Some customers shun the Whirlpool brand as they imagine getting the same thing much cheaper at Ikea. Indesit has 15 plants: six in Italy, four in Poland, two in Russia and one in each the UK and Turkey. Total workforce is at about 16,000. Whirlpool has about 14,000 staff workers in Europe.
Indesit recently reached an agreement with the unions to move production back to Italy from Spain and Turkey in a unique industrial agreement. The agreement reduced the number of planned layoffs, but the unions agreed, showing a worker flexibility that had never heard of before, or at least not in Italy.
Remember the eighties, where the mergers and acquisitions flew all around and comprised hundreds of billions? That era has passed, but there is some serious company news in the European appliance sector. The latest is, of course, the Indesit news; but a few months ago, Germany was shocked by the news that Siemens wanted to sell their stake in BSH, the appliance joint venture with Bosch. There are said to be several reasons for this: Siemens (which is a conglomerate, not unlike GE) wants to get out of the consumer business; it wants to invest the resources in higher profitable sectors, and the profits of BSH have been affected by a very large product recall:faulty dishwasher PCB’s.
BSH was created in 1967 when both companies merged their appliance business, and the company has been market leader in Europe since then. Their product palette is very wide and the brand reputations are iron-clad, and partly based on the made-in-Germany reputation, even if a lot of products are manufactured in Poland, Spain and Turkey. BSH has no plants in Italy. It is unknown if BSH could keep the Siemens brand, but it would be a large and very risky restructuring in sales, marketing and consumer image, and would surely damage business.
Other news from Siemens (a 360,000 staff conglomerate) is that they want to spin off their highly profitable medical business, a strong competitor for Philips Medical and GE. Financial analysts value a separation, which would involve 51,000 staff and 13.6 billion Euro. Their leading hearing-aid unit (4,000 staff) will also get a separate stock market listing. This comes after Osram, the Siemens lighting brand, was separated. Last spring, it was announced that Siemens bought the Rolls Royce energy aero-derivative gas turbine and compressor business. These are power generators using technology similar to aircraft engines. Here, 2,4000 staff are involved, with just over 1 billion Euro in revenue.
In October last year, Spanish-French Fagor-Brandt went bankrupt. Housing and consumer crisis in Spain, heavy competition and large debts from the Brandt take-over contributed to the demise. Fagor was part of Mondragon Corporation, the world’s largest cooperative, with a total of 70,000 workers. Many would expect that the mother company would rescue Fagor but the sums were too large.
Philips (another conglomerate, from the Netherlands) recently sold their video and audio business to Gibson Brands, the US guitar maker, who also owns Onkyo and TEAC. It took a while, and several tries, for Philips to get rid of these businesses. The TV market was too difficult for Philips; Samsung and LG have taken the European markets by storm. Philips still has the SDA unit, selling highly profitable shavers and toothbrushes, and is known for successful innovations such as the AirFry hot air fryer. Philips also successfully integrated Italian coffee specialist Saeco. Recently, there was the news that Philips wanted to spin off its LED manufacturing business and focus on integrated lighting systems and related electronics.
German premium TV manufacturer Loewe, famous for their modern designs in typical German Bauhaus-Braun style, has been taken over by investment company Stargate Capital, based in Munich. There were only 300 staff left. The company will be reducing their own production and changing to additional producing, much like tuning companies such as AMG do for Mercedes.
Ultra-luxury Danish TV and audio manufacturer Bang & Olufsen has been struggling, too; they had to report a higher-than-expected loss in the first quarter of 2014. Sales of the younger and less expensive B&O Play line also declined, due to the low level of product introductions. Their premium products have been hit quite hard by the economic downturn.
Another business soap opera is playing out in Germany. Europe’s largest brick-and-mortar electronics retailer Media-Saturn (MSH), part of retail giant Metro, is not doing well; they waited too long with their internet presence. Metro owns 78 percent of Media-Saturn, while co-founder Erich Kellerhals owns the other shares, but has extensive veto rights. And, you guessed it, they fight over everything. Should Metro sell MSH, so they can focus on more promising sectors? What is the value of MSH considering their bleak future? Will a future owner want to deal with a co-founder who can’t seem to leave his baby alone? And, perhaps most importantly, what will the new direction be for MSH?
Kellerhals might be very present in the media, but insiders do not see a credible new strategy. The only element that everyone wants to keep is the decentralized structure: many of MSH stores are franchised, giving great flexibility. There are about 1000 outlets in 17 European countries, 60,000 staff and $21 billion revenue (2012). Value of the company lies somewhere between five and 10 billion Euro, depending on your estimate of the future for the company.
Regarding internet strategy, however they did take action. In 2011, online retailer Redcoon was purchased, as well as Russian 003.ru, also online. It seems that the goal is to integrate distribution channels, but there doesn't seem to be much progress.