Midea Group and the Possible Philips Domestic Appliances Acquisition

I saw some news in the past few days, and then checked the information. I thought it was interesting, so I would like to share it with everyone.

>News on January 28:

>Philips Group CEO Van Houten told reporters: "All options are open and we have not decided the best way forward."

>

>According to Reuters, Philips is looking for potential buyers of its home appliance business. In 2019, sales of this business, including coffee machines, air purifiers, etc., reached 2.3 billion euros ($2.55 billion).!Midea Group and the Possible Philips Domestic Appliances Acquisition image 2

Then on February 26, Midea Group announced that it planned to apply for a bond issuance of 20 billion:

Midea Group announced: In order to further broaden the company's financing channels, optimize the financing structure, enhance the company's liquidity management capabilities, ensure the company's financial stability through reasonable financing layout, and meet the company's financial needs for strategic development, Midea Group Co., Ltd. plans to apply to the China Interbank Market Institutional Investors Association to register and issue debt financing instruments with a total amount of no more than 20 billion yuan (inclusive). Among them, ultra-short-term financing bonds shall not exceed RMB 10 billion (including RMB 10 billion), and medium-term notes shall not exceed RMB 10 billion (including RMB 10 billion). The funds raised this time will be used to meet the company's production and operation needs, including but not limited to debt repayment, debt structure adjustment, working capital supplement, project investment or important payments and other corporate production and operation activities that comply with relevant national laws, regulations and policy requirements.

The timing and digital news have led market analysts to believe that Midea Group is preparing to acquire Philips' home appliance business.

First, let’s take a look at the composition of Philips’ home appliance business (the following picture is taken from the report of Everbright Securities):

The annual revenue of major small household appliances products is between 2.0 and 2.5 billion euros.

So who are the possible buyers in the market?

If it is acquired by some foreign small home appliance giants, it will basically not have any impact on the industry structure in the short term, so we will not go into details here.

Then we list some powerful buyers in China:

China: Midea Group, Haier Group, Joyoung, Gree Group, Supor Electric Appliances

Among them: Midea acquired Toshiba, Sharp and Eureka in the United States in the past few years. In fact, the integration was not very successful and synergy has not been achieved.

Haier Group: Haier just acquired the home appliance business of the Italian Candy Group last year, and it is basically unlikely that it will acquire a brand in the same European region.

Joyoung Electric: Joyoung has just packaged and listed Sharkninja, which it acquired for 10 billion, in Hong Kong. It should not be able to acquire other brands in the short term.

Supor: Supor has grown rapidly in home appliances in recent years. However, Supor belongs to the French SEB Group. If an acquisition is to be made, it should be carried out by the French SEB Group.

Gree Electric Appliances: Gree Electric Appliances has achieved its ultimate in the field of air conditioning in recent years, and it is basically difficult to achieve major growth. Now Gree Electric Appliances has also begun to enter the small home appliance business, but the actual development is not very good. If Philips can be acquired, it should be a better springboard for Gree Electric Appliances.

Therefore, based on the above information, among the domestic appliance giants, only Midea Group and Gree Electric Appliances have the ability and demand.

If Philips is acquired, what impact will it have on the cleaning appliance industry?

First of all, Philips' main foundries are Suzhou Chunju Electric, Flextronics, Apple Electric, and Xinbao Electric. The annual vacuum cleaner shipments should be around 2 million.

If it is acquired by Gree, since Gree is not deeply involved in cleaning appliances, the foundry business will basically remain unchanged.

If it is acquired by Midea, since Midea has its own factories, most of the OEM part should be recovered, and Midea's cleaning appliance shipments will increase significantly.

Due to the impact of the new coronavirus this year, everyone is still relatively pessimistic about the industry's prospects. Everyone expects sales to decline, just by how much. If Midea takes the opportunity to win Philips, and the Vietnam factory wins major customers, it will have a chance to become the number one in the cleaning appliance industry.

How will the story develop next? Let’s wait and see