China's leading home appliance maker Haier Group has made a bid to buy Maytag, the third-largest appliance maker in the United States, for US$1.28 billion.

Maytag has received a preliminary non-binding proposal from Haier America Trading LLC, and private equity companies, Bain Capital Partners LLC and Blackstone Capital Partners IV LP, Maytag announced yesterday on its website.

But Haier Group did not give any response yesterday.

According to Maytag's announcement, the consortium offered to acquire all outstanding shares of Maytag for US$16 per share in cash, higher than the previous bid by Ripplewood Holdings LLC.

On May 19, Maytag agreed to be acquired by a group of investors led by Ripplewood for US$14 per share in cash. Maytag's stock has been trading above US$14 a share since May 20 amid speculations that a higher bid would be made for it.

The Newton, Iowa-based company, which has 79.7 million shares outstanding as of April 2, said it is considering the proposal.

"We continue to support the Ripplewood transaction. However, we also believe that it is incumbent on us to pursue this possibility of achieving a higher price for our stockholders," said the company's lead director Howard Clark.

With a history spanning more than 100 years, the appliance maker is worth US$4.7 billion and offers a full range of products including washers, dryers, dishwashers and refrigerators under the brand names Maytag, Hoover, Jenn-Air, Amana, Dixie-Narco and Jade.

Maytag's troubles began because of rising raw material costs, keen and ever-increasing competition, and a shrinking market share.

"Haier is looking for a new way to achieve its globalization goals," said Lu Renbo, an industry expert from the Development Research Center of the State Council.

Previously, Haier had expanded its business into the overseas market through manufacturing and export.

"Purchasing a big local company might be the best and fastest plan for Haier's global expansion," Lu said.

With its established brand names, and well-developed market and sales networks, the purchase of Maytag would give Haier an edge in the US market.

Haier considers the US a key market and started local production in the US in 2000, producing 500,000 refrigerators a year.

Haier's move to buy Maytag follows that of other big Chinese companies, which look to penetrate the US market through mergers and acquisitions.

Leading domestic PC maker Lenovo bought IBM's unprofitable PC business for US$1.25 billion last month. It is also reported that China National Offshore Oil Corp offered US$20 billion to bid for US energy group, Unocal.

"But companies like Haier need to be more mindful about purchasing risks," Lu warned.

Haier's scale of business is still small compared with that of multinational companies.

Its competitive edge lies in its manufacturing ability, but it falls short in terms of capital and technology innovation.

"These are invisible risks that might affect future performance after acquiring a foreign company, particularly its losses and debts," Lu said.

TCL is a typical example. The domestic home appliance giant lost money after buying the loss-making TV business from French company Thomson last year.

Haier's share price on the Shanghai stock exchange edged down 1.24 percent to 4.79 yuan (58 US cents).

(China Daily June 22, 2005)