This year has been the year for private equity buyouts. Whether rumored, such as the possible sellout of Hollywood Entertainment (NASDAQ:HLYW) to Leonard Green & Partners, or actual, such as Procter & Gamble's (NYSE:PG) sale of Sunny Delight to J.W. Childs, taking undervalued name brands private seems to have been the "it" financial transaction of 2004. So it came as no surprise when shares of Sweden's premier appliance maker, Electrolux (NASDAQ:ELUX), jumped 4.5% yesterday on the mere rumor that private equity firms have been sniffing around.
It's not hard to see why such interest might exist. When you consider how the company stacks up valuewise against competitors General Electric (NYSE:GE), Maytag (NYSE:MYG), Philips (NYSE:PHG), and Whirlpool (NYSE:WHR), you quickly get the impression that Electrolux is bargain-priced. Its price-to-earnings (P/E), price-to-sales (P/S), and price-to-book (P/B) ratios, as well as its price-to-earnings-to-growth ratio (PEG), all compare quite favorably to its competitors in a would-be acquirer's eyes:
| Company | P/E | P/S | P/B | PEG |
|---|---|---|---|---|
| Electrolux | 13.4 | 0.4 | 2.0 | 1.5 |
| GE | 24.3 | 2.7 | 3.9 | 2.2 |
| Maytag | 69.3 | 0.3 | 40.8 | 6.6 |
| Philips | 8.7 | 0.8 | 1.7 | 0.7 |
| Whirlpool | 10.9 | 0.3 | 3.2 | 1.6 |
Of the five, only Philips and Whirlpool appear to be as much of a bargain as Electrolux -- or in Philips' case, a better bargain. But as an acquisition target, Philips' $33 billion market cap would make it quite difficult to swallow in comparison with Electrolux's more manageable $7 billion size. Whirlpool, on the other hand, at just $4.5 billion, would be more manageable. (And interestingly, on a day when the market as a whole climbed just 1%, Whirlpool's stock price doubled that feat yesterday.)
None of this is any guarantee that the buyout rumors will prove true, of course. The entire appliance industry has been struggling this year as the costs of raw materials, in the form of everything from the energy needed to run manufacturing facilities to the steel required to make a machine, have skyrocketed. And those economic trends may scare off would-be buyers for the time being. But any Fool planning to take a position in Electrolux in hopes of a payday can afford to wait. The company pays a hefty 4% dividend, which is more than twice the yield offered by the average S&P stock.
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Fool contributor Rich Smith has no position in any of the companies mentioned in this article.
