Electrolux – the acquisition Electrolux – the acquisition and integration of Zanussiand integration of Zanussi

Tushar NarulaTushar Narula

MBA(IB),2MBA(IB),2ndnd semester semester

D-67D-67

Problems of Electrolux !! Problems of Electrolux !!

Declining profit in 1962Declining profit in 1962 Absence of research & development Absence of research & development

capability.capability. Inefficient in compare to competitorsInefficient in compare to competitors Limited product lineLimited product line The core business was made up vacuum The core business was made up vacuum

cleaner & absorb – refrigeratorscleaner & absorb – refrigerators . .

Electrolux has an aggressive expansion strategy Electrolux has an aggressive expansion strategy through acquisition.through acquisition.

At beginning it concentrated acquiring firms at its At beginning it concentrated acquiring firms at its traditional market.traditional market.

Subsequent acquisitions served not only to Subsequent acquisitions served not only to srengthen the company’s position in household srengthen the company’s position in household appliances activities but also broaden its appliances activities but also broaden its European presence.European presence.

From 1970s to 1988 it made capital gain of more From 1970s to 1988 it made capital gain of more than SEK 2.5 billion from selling off idle assets .than SEK 2.5 billion from selling off idle assets .

Growth at Electrolux through Growth at Electrolux through acquisition acquisition

Sale of electro helios to electrolux.Sale of electro helios to electrolux. Electro helios was technological leader I Electro helios was technological leader I

compressors type refrigerators.compressors type refrigerators. This lead to major expansion of electrolux’s This lead to major expansion of electrolux’s

role in swedish household appliances market.role in swedish household appliances market. Through acquisitions electrolux become the Through acquisitions electrolux become the

world largest manufacturer of household world largest manufacturer of household appliances from a small & marginal player.appliances from a small & marginal player.

Contd…Contd…

By developing the product line By developing the product line through acquisition and in house through acquisition and in house development , Electrolux emerged as development , Electrolux emerged as one of the world’s leading chain –saw one of the world’s leading chain –saw manufacturers with about 30% of the manufacturers with about 30% of the global market.global market.

Points keep in mind before Points keep in mind before acquisition of a companyacquisition of a company

““you never choose an you never choose an acquisition ;opportunities just come”acquisition ;opportunities just come”

The financial aspect of the project were The financial aspect of the project were considered to be very important.considered to be very important.

The company usually ensured that it paid The company usually ensured that it paid less for a company than total assets less for a company than total assets value.value.

No standard method for treating No standard method for treating acquisitionacquisition

ABOUT ZANUSSIABOUT ZANUSSI

Started in 1916, small workshop in Started in 1916, small workshop in Pordenone in Northeast ItalyPordenone in Northeast Italy

It was 2It was 2ndnd largest privately-owned largest privately-owned company in Italycompany in Italy

It had 30,000 employees, 50 factories & It had 30,000 employees, 50 factories & 13 foreign sales companies13 foreign sales companies

Branch Office is in Paris & was opened in Branch Office is in Paris & was opened in 19621962

11stst foreign manufacturing subsidiary is foreign manufacturing subsidiary is IBELSA, set up in Madrid in 1965IBELSA, set up in Madrid in 1965

Actions taken after acquiring a Actions taken after acquiring a company company

It identify the key action areas and It identify the key action areas and created task force consisting of created task force consisting of managers from both electrolux and the managers from both electrolux and the acquiring company in order to address acquiring company in order to address each issues on a time bound basis.each issues on a time bound basis.

The top management of the was often The top management of the was often replaced but the middle management replaced but the middle management was kept intact.was kept intact.

Product Range includes: Cookers, Product Range includes: Cookers, Refrigerators & Washing-MachinesRefrigerators & Washing-Machines

Company’s misfortune started in 1968, Company’s misfortune started in 1968, when Lino Zanussi & other executives when Lino Zanussi & other executives died in an Air Crashdied in an Air Crash

It also carved out a costly programme It also carved out a costly programme into fields: Color Television, Prefabricated into fields: Color Television, Prefabricated Housing, Real Estate & Community Housing, Real Estate & Community CentersCenters

ACQUISITION PROCESSACQUISITION PROCESS

ZANUSSIZANUSSI

They were weak during the They were weak during the acquisition processacquisition process

Zanussi were largest producer Zanussi were largest producer of “Wet-Products” like: of “Wet-Products” like: Washing-MachinesWashing-Machines

Zanussi was completely Zanussi was completely absent in these areasabsent in these areas

Market leader in Italy & SpainMarket leader in Italy & Spain Strong in France too & Strong in France too &

significant presence in significant presence in GermanyGermany

It was a vertically integrated It was a vertically integrated company with substantial company with substantial spare capacity for component spare capacity for component productionproduction

ELECTROLUXELECTROLUX

They were strong enoughThey were strong enough Well established in Well established in

Microwave-Ovens, Microwave-Ovens, Cookers& Fridge-FreezersCookers& Fridge-Freezers

Had large market share in Had large market share in Scandinavia & SwitzerlandScandinavia & Switzerland

Electrolux failed to crack Electrolux failed to crack these areasthese areas

They were losing money & They were losing money & had limited strength in had limited strength in Vacuum CleanersVacuum Cleaners

It avoided vertical It avoided vertical integration & sourced most integration & sourced most of its components of its components externallyexternally

RESOLVING ISSUESRESOLVING ISSUES Consortium was organized that included Consortium was organized that included

prominent Financial Institutions & Industrial prominent Financial Institutions & Industrial Companies such as: Mediobanca, IMI, Crediop & a Companies such as: Mediobanca, IMI, Crediop & a subsidiary called Fiat.subsidiary called Fiat.

Meeting was held on negotiation process that Meeting was held on negotiation process that took place in Rome on Nov15,1984took place in Rome on Nov15,1984

Document confirming Electrolux’s intention to Document confirming Electrolux’s intention to acquire Zanussi was jointly signed by both acquire Zanussi was jointly signed by both partiesparties

Hans Werthn declared: “We are not buying Hans Werthn declared: “We are not buying companies in order to close them down, but to companies in order to close them down, but to turn them into profitable ventures & we are not turn them into profitable ventures & we are not Vi-kings, who were Norwegians, anywayVi-kings, who were Norwegians, anyway

NEGOTIATIONS NEGOTIATIONS UNDERTAKENUNDERTAKEN

From Nov30,1983 until Dec14,1984 was From Nov30,1983 until Dec14,1984 was when formally negotiation was signed for when formally negotiation was signed for a 12-month perioda 12-month period

Various issues undertaken were:Various issues undertaken were:

1.1. Union and Work Force ReductionUnion and Work Force Reduction

2.2. Prior Commitments of ZanussiPrior Commitments of Zanussi

3.3. Financial Structure and OwnershipFinancial Structure and Ownership

Income statement for Zanussi Income statement for Zanussi GroupGroup

   19801980 19811981 19821982 19831983

Sales Sales 38263826 43274327 44154415 52405240

operating costoperating cost (-)3301(-)3301 (-)3775(-)3775 (-)3957(-)3957 (-)4654(-)4654

              

Operating Income Before DepriciationOperating Income Before Depriciation 525525 552552 458458 586586

DeprecationDeprecation (-)161(-)161 (-)98(-)98 (-)104(-)104 (-)130(-)130

              

Operating Income After DepreciationOperating Income After Depreciation 364364 454454 354354 456456

Financial IncomeFinancial Income 192192 330330 284284 279279

Financial expensesFinancial expenses (-)407(-)407 (-)489(-)489 (-)647(-)647 (-)627(-)627

              

Income after financial itemsIncome after financial items 149149 295295 99 1818

extraordinary itemsextraordinary items (-)53(-)53 (-)228(-)228 (-)223(-)223 8181

              

income before appropriationincome before appropriation 9696 6767 232232 189189

AppropriationsAppropriations (-)53(-)53 (-)42(-)42 (-)409(-)409 (-)382(-)382

              

Income befor taxesIncome befor taxes 4343 2525 641641 193193

taxestaxes (-)7(-)7 (-)7(-)7 (-)10(-)10 (-)10(-)10

              

net income net income 3636 1818 (-)651(-)651 (-)203(-)203

   19801980 19811981 19821982 19831983

Current asets excluding inventoryCurrent asets excluding inventory 15591559 19871987 18111811 21082108

InventoryInventory 965965 10541054 999999 656656

Fixed asstesFixed asstes 16221622 15391539 23662366 29022902

              

Total asstesTotal asstes 14161416 45804580 51765176 59665966

              

Current liabilitiesCurrent liabilities 15901590 18321832 18751875 20722072

Long term liabilitiesLong term liabilities 12731273 14411441 18641864 23492349

ReservesReserves 259259 301301 472472 627627

Shareholders equityShareholders equity 10241024 10061006 965965 918918

              

Total liabilities and shareholders equityTotal liabilities and shareholders equity 41464146 45804580 51765176 59665966

Balance SheetBalance Sheet

MISSIONMISSION TO BECOME MARKET LEADER IN EUROPE.TO BECOME MARKET LEADER IN EUROPE. TO HOLD A SIGNIFICANT POSITION IN OTHER TO HOLD A SIGNIFICANT POSITION IN OTHER

WORLD AREAS.WORLD AREAS. TO SATISFY THE CUSTOMER NEEDS.TO SATISFY THE CUSTOMER NEEDS.

VALUESVALUES TO BE NEAR THE CUSTOMER.TO BE NEAR THE CUSTOMER. TO ACCEPT CHALLENGES.TO ACCEPT CHALLENGES. TO DELIVER TOTAL QUALITY.TO DELIVER TOTAL QUALITY.

MISSION VALUES AND GUIDING MISSION VALUES AND GUIDING PRINCIPLEPRINCIPLE

ELECTROLUX COMPONENTS ELECTROLUX COMPONENTS GROUPGROUP

Electrolux acquisition of white goods in Electrolux acquisition of white goods in U.S in march 1986U.S in march 1986

Limitation in level of finished goods due Limitation in level of finished goods due to differences in customer test , technical to differences in customer test , technical standards and high transportation costsstandards and high transportation costs

To control the competitiveness 50% of To control the competitiveness 50% of components was to be made from components was to be made from outside parties, 20% of internal outside parties, 20% of internal requirement from insiderequirement from inside

BRAND POSITIONING AND BRAND POSITIONING AND PRODUCT DEVELOPEMENTPRODUCT DEVELOPEMENT

Electrolux international expansion was a Electrolux international expansion was a proliferation of brands all over including U.S and proliferation of brands all over including U.S and EuropeEurope

In Europe the chose 4 brand- name families in In Europe the chose 4 brand- name families in which a particular customer profile to become a which a particular customer profile to become a separate design familyseparate design family

It involves scale production of standardized productIt involves scale production of standardized product Each brand would be localize in its country through Each brand would be localize in its country through

distribution, positioning, promotion and servicedistribution, positioning, promotion and service