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Maytag faces rough road to better times


Whether Maytag Corp. is sold to Ripplewood Holdings LLC or to some other suitor, the appliance manufacturer will undergo a major transformation to speed development of new products, pursue new markets and streamline its manufacturing operations. It’s quite likely some of the changes will be painful for Central Iowa, but ultimately they will make the company financially and competitively stronger.

Maytag’s problems are partially a result of its slow adaptation to change. It’s a pattern that began after World War II. During the 1930s, Maytag enjoyed a 40-45 percent market share in washing machines, but saw its share plunge to 8 percent by 1954, because it stuck with wringer washing machines as its competitors shifted to automatic washers. Maytag has lagged behind its competitors ever since in developing products, increasing its international business and cutting costs. It’s catching up in product development, but still has a long way to go in cost-cutting. It may not necessarily need to have an international presence, but it certainly has to increase its share of the North American market, including Mexico.

Maytag’s recent history offers significant lessons for business professionals and has served as a case study for students in Iowa State University’s M.B.A. program. Among the lessons is the impact of acquisitions and debt on the real and perceived value of corporations. Maytag’s acquisitions of the Amana and Hoover companies have compounded its problems and run up its debt to more than $850 million. When you acquire a company, you obtain the entire company. Then you have to either sell off what you don’t want or close it down. Maytag now has Amana’s various plants plus its own. Union contracts restrict a firm’s options, but the trend is toward large modern plants dedicated to making one type of appliance. Small inefficient plants must be sold or closed.

Ripplewood Holdings’ history suggests it would attempt to turn Maytag around, then sell it in a few years. I see it wanting to work closely with the current managers through the board of directors. Its status as a private company would enable its management to make and implement the tough decisions Maytag has avoided – such as closing inefficient plants, moving some operations to Mexico and outsourcing to Asia in order to reduce costs and be competitive in a very competitive industry.

Maytag has some experience in running efficient manufacturing operations. Its Jackson, Tenn., plant, for example, manufactures the dishwashers for all Maytag-owned brands, and the high output of this plant makes it extremely profitable.

It’s likely that Newton will continue to be the manufacturing site for the front-loading Neptune washer and dryer. However, the people of Newton do have cause for concern. CEO Ralph Hake indicated at this year’s shareholders meeting that Maytag might have to close Newton’s Plant Two, which manufactures top-loading washers and dryers, unless the company can negotiate a new union contract that cuts benefits considerably.

Maytag will most likely keep the new Neptune facility operating in Newton. It might make sense to keep the corporate headquarters here – at least in the foreseeable future.

I’m not negative on Maytag. I think it’s a good company.

But as a stockholder, I am curious as to why the board of directors approved Ripplewood’s proposed $14 a share buyout. The board’s job is to oversee top management and represent the shareholders. We’re the owners. For them to agree to a buyout of $14 a share does little for us. I estimate that 95 percent of the shareholders bought the stock at more than $14 a share. Why should they agree to sell now?

J. David Hunger is a professor of management at the Iowa State University College of Business and an expert in the fields of corporate governance and strategic management.

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