Liam Dann 's Opinion

Business editor of the NZ Herald

Liam Dann: Put Haier bid through the wringer

32 comments

It'll be hard to let go ... New Zealanders have a strong emotional attachment to Fisher & Paykel Appliances.

Appliances are heavy goods that need to be built near their key markets. File photo / Glenn Jeffrey
Appliances are heavy goods that need to be built near their key markets. File photo / Glenn Jeffrey

What is your first memory of Fisher & Paykel? Mine goes right back to my earliest years. I vividly recall the sound and feel of the spin cycle on those early automatic washing machines - that classic 1970s model with the big pop-out dial and chunky hard-to-push buttons. It was like it was trying to launch into orbit.

They didn't break down much, though, and if they did someone local could fix them cheaply.

Anyway, let's admit it, we have an emotional connection to this company. And that is one of the big pitfalls to recognise when you head into a financial transaction.

For better or worse that's where many Kiwis are now in their relationship with F&P - either directly as shareholders, or far more numerously, through KiwiSaver and other managed funds.

As much as the F&P brand has a place in our memories, we also have to be honest about the current the state of the company.

It is not as strong as it once was. It will never be as dominant as it was before 1984 when it was a near-monopoly thanks to the tariffs on imported manufactured goods.

The company has been through pretty hard times since splitting from its Healthcare division in 2001 and listing on the NZX as a new stand-alone company.

The stock listed at $1.77 and before this takeover had been languishing around the 30c mark.

The local and global economy has not been kind. The rise of the Kiwi dollar since mid-2000 has been a crippling handicap. Management has been forced to stay relentlessly focused on costs, at the expense of the brand's reputation.

Much of the manufacturing has already been shifted to cheaper labour markets and there is no doubt more of that to come, regardless of who owns it. Appliances are heavy goods that need to be built near their key markets.

This is not the export industry that will transform our economy.

But what Haier has seen and wants is technical expertise, the research and development capability and the intellectual property built up here.

That - and the marketing, advertising, the English-speaking legal and banking work - are the industries we should aim to be keeping in this country regardless of whether Haier does this deal.

And, if we take them at their word, that is a commitment we got from them last week.

Typically though, with these foreign takeovers, that commitment has a limited lifespan. It might be genuine now but it can't be guaranteed.

Management, boards and shareholders all change and corporates are ruthlessly pragmatic in these things.

So this is another big call for New Zealand shareholders and institutions. It is too early to make that call, at least in my book.

If I was shareholder - which I'm not - I'd want a lot more information. But I'd also be sceptical about the initial offer price. At 64 per cent above the pre-offer close it might look generous. But what if you take a longer-term view - as Haier surely has.

The price is everything really. Forget about the emotion. If we as a nation are going to do business with Chinese corporates then we need to make sure we are good at doing business.

The board's job now is to make the case for a better price - a simple brief but a difficult job.

If there are others interested in tyre-kicking F&P Appliances right now, then we should hope the board is doing all it can to encourage them - despite the strong links it already has to Haier with its 20 per cent stake and two board members.

How do I know if $1.20 is not a great price? I haven't done due diligence. Well, simply because it is their first offer and shareholders would be mugs to accept that.

Okay, we didn't have Money Week and financial literacy in the classroom when we were kids but we did have It's in the Bag. What'll it be, F&P, the money or the bag?

Play too tough and Haier could walk away. If it bailed on its 20 per cent stake that would depress the value dramatically.

The independent valuation will soon provide some guidance but that is not always definitive.

The board has to walk a fine diplomatic line from here.

That's the challenge of doing big deals. At some point you have to back yourself or it isn't worth being in the game. Why wouldn't the board back this company with all its proud history - beyond the first offer at least?

Funnily enough, there may be some value in that emotional connection to New Zealanders, even though shareholders are advised to put it to one side.

That connection has been a strength for this company. There is still power in the brand and the quality of the products.

There's no hiding from the recent pressure on that reputation - particularly around the dishwasher line. But those guys in East Tamaki still do a pretty mean washing machine. It's a bit unscientific but the one at my place has been given a daily thrashing for going on eight years.

There's another potential outcome here too. Haier has indicated that it will take 51 per cent if it can get it - it could live with a majority stake.

Although the big institutional shareholders will determine majority control in this deal, the small shareholders probably have the power to keep F&P Appliances listed on the stock exchange.

If Haier gets anything less than 90 per cent then F&P Appliances stays tied to New Zealand on the NZX.

However this takeover turns out, it is going to be fascinating to watch unfold.

We should pay attention to this one. It won't be the last in the coming economic cycle. We have let too many companies go too cheaply in tough times.

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Let us know what you think. As part of the new-look Business Herald we hope to regularly run your letters and comments. We also want to hear what you think about the new section. Send your feedback to business@nzherald.co.nz. Letters for publication should include a name and address and should not exceed 200 words.

- NZ Herald

Liam Dann

Business editor of the NZ Herald

Liam Dann is the Business editor of the New Zealand Herald, overseeing all our business content in print and online. He has been a journalist for 20 years, covering business for the last 14 of them. He has also worked in the banking sector in London and travelled extensively. His passion is for Markets and Economics, because they are the engine of the New Zealand economy.

Read more by Liam Dann

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