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(Bloomberg) — Electrolux AB’s top shareholder is seeking watertight guarantees from Chinese appliance giant Midea Group Co. to address concerns US regulators would block a takeover of the white-goods maker.
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Investor AB, controlled by the billionaire Wallenberg family, has raised a number of concerns about the terms of Midea’s proposal and potential execution risks in initial talks with the Chinese company, people with knowledge of the matter said. It’s particularly worried about the Committee on Foreign Investment in the US rejecting a Chinese takeover of Stockholm-based Electrolux because of its sizable American business, they said.
The investment firm has asked whether Midea would commit to buying its stake even if the takeover was blocked by regulators, a request the Chinese suitor has so far rebuffed, one of the people said, asking not to be identified discussing confidential information. Investor AB is key to any deal as it holds a nearly 18% stake in Electrolux and 30% voting rights.
Electrolux and Investor AB view the Midea proposal as undervaluing the company, the people said, without disclosing the exact offer price, though they said it carried a significant premium. The target so far has not been receptive to the approach, which was made in recent weeks, Bloomberg News reported April 30.
Spokespeople for Electrolux and Investor AB declined to comment, while a representative for Midea didn’t immediately respond to requests for comment.
Mr. Unpopular
Investor AB’s unusual request shows the deep-rooted concerns that any major Chinese takeover, even one targeting a maker of dishwashers and refrigerators, would be blocked by Washington as political tensions run high.
Though there’s a precedent for successful Chinese deals in Sweden, with Zhejiang Geely Holding Group’s successful revival of Volvo Car AB, relations between the two countries have been cooling. Antitrust scrutiny and protectionism in the US and Europe more broadly are already hurting overall deal volumes, leading to the slowest first quarter in a decade.
“China isn’t Mr. Popular at the moment,” Ben Kelly, an analyst at Louis Capital Markets in London, said by phone. “The idea that a Chinese company buys a national champion like Electrolux seems to be beyond the pale.”
Electrolux has a significant presence in North America, where its brands include iconic Frigidaire appliances, and generated 35% of group revenue in the region last year. While winning over Investor AB could tip the scales in Midea’s favor for a deal, Kelly said he could “still see US opposition raising hackles”.
Chinese companies embarked on a shopping spree several years ago, announcing more than $400 billion of overseas acquisitions during 2016-2017 as the government encouraged them to go global, according to data compiled by Bloomberg.
The wave of dealmaking has since tailed off after a number of transactions soured and Beijing told some top companies to focus on domestic operations. Chinese firms announced just $44 billion of foreign purchases last year, the lowest level since 2008, the data show.
Midea has been interested in Electrolux for some time and would only want a friendly deal, people with knowledge of the matter have said. Other Asian appliance makers, including Samsung Electronics Co., have also looked at the Swedish business, the people said.
Stockholm-based Investor AB first invested in Electrolux in 1956 and it remains a “core investment” today, according to its website. Electrolux’s B shares rose 5.6% on Tuesday, giving it a market value of about 46.4 billion Swedish kronor ($4.5 billion). Midea is valued at almost $58 billion.
Investor AB would like to avoid a repeat of the botched sale of Swedish Orphan Biovitrum AB in 2021. At the time, it agreed to sell its 35% stake in the drugmaker to private equity firm Advent International and Singapore wealth fund GIC Pte, only to see the deal scuppered by opposition from other shareholder, AstraZeneca Plc.
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