3rd UPDATE:China's Haier To Take 20% Stake In F&P Appliances

China's Haier Group will purchase a 20% stake in New Zealand-based Fisher & Paykel Appliances Ltd. (FPA.NZ) in a move that will help raise the Chinese whiteware manufacturer's profile in the global home appliances market and bolster both firms' ambitions to grow outside of their countries.

In separate statements Wednesday, the companies said the deal will give Haier exclusive rights to sell Fisher & Paykel's home appliances in China, while its New Zealand counterpart can exclusively sell Haier's products in Australia and New Zealand.

The partnership "gives us a unique opportunity to fully globalize Fisher & Paykel Appliances and really drive our global expansion into parts of the world that had previously been very difficult for us to penetrate," Fisher & Paykel Chief Executive John Bongard said in a conference call with analysts.

"A major benefit is the access it gives us to the huge and growing China market, which would have been extremely difficult for us to crack on our own."

Pressured by fierce competition and rising costs in the home market, Haier, China's biggest home appliance maker, has adopted a proactive approach on overseas expansion in recent years to drive future growth. But it has encountered stumbling blocks in penetrating the important U.S. market. It lost to Whirlpool Corp. in acquiring U.S. appliance maker Maytag Corp. in 2004 and last year it dropped a bid for General Electric Co.'s (GE) appliances unit due to the global economic slowdown.

In 2007, Haier made small acquisitions for individual factories in markets such as India and Thailand as part of its strategy to base production closer to its customers.

Haier said its purchase is a strategic decision and can help the firm explore the high-end global whiteware market.

"The deal will allow Haier to share the marketing, and research and development resources of Fisher & Paykel in the high-end whiteware market," Haier said.

When asked whether it will further increase its stake in Fisher & Paykel, Haier said it "all depends on market conditions," without elaborating.

For Fisher & Paykel, the deal also allows the company to avoid a potential call on funds from its bankers.

The Auckland-based New Zealand appliance maker said it would raise a minimum of NZ$189 million through a NZ$46 million initial placement to Haier Group, and a fully underwritten NZ$143 million pro-rata renounceable rights issue.

It will then carry out a top up placement to Haier of NZ$12 million to ensure a shareholding of 20%.

Morgan Stanley acted as Haier's financial adviser.

Bongard said work with Haier would begin immediately.

"I expect to see some positive synergies flowing through our fiscal 2010 year without a doubt, but I would think that fiscal 2011 will even better."

Haier's total investment in the company will be between NZ$80 million and NZ$82 million.

The initial 17% stake taken up by Haier has a placement price of NZ$0.80-a-share, while the NZ$143 million rights issue has an issue price of NZ$0.41-a-share, the company said.

 
     Deal Well Received 
 

The New Zealand market reacted positively to the news of the deal, with the Fisher & Paykel Appliances stock trading up 52% at NZ$1.00 at 0310 GMT, bolstering the benchmark NZX-50 that was up 1.3%.

Hammered by a slowdown in demand, the debt-laden company has been working on a rescue plan with banks since February.

Forsyth Barr head of research Rob Mercer said it was "long overdue" for Fisher & Paykel Appliances to have a cornerstone investor.

"Time will tell as to how earnings will improve as a result of these changes, but at least the financial risks have been neutralized. The company can refocus on operating profit, which is still a concern," he said.

Earlier Wednesday, Fisher & Paykel Appliances posted a net loss of NZ$95.3 million for the 12 months ended March 31, compared with a net profit of NZ$54.2 million in the previous year.

While Bongard said profit would improve in the coming year, largely due to lower one-off costs, he was cautious about the trading outlook.

"We are expecting a continuation of the soft business conditions that really hit us very hard and very quickly from October last year," said Bongard.

The net proceeds from the capital raising are to be used to reduce debt with the exception of NZ$15 million that will be applied to the company's finance business, Fisher & Paykel Appliances said.

The company also said it had reached an agreement for a new NZ$575 million debt refinancing package for the appliances business.

"We have emphatically dealt with the capital structure issues and it really is business as usual in terms of our global manufacturing strategy," said Bongard.

-By Rebecca Howard, Dow Jones Newswires; 64-4-471-5990; [e-mail]

   (Jin Jing and Shen Hong contributed to this story.)