For Maytag (NYSE:MYG) shareholders, a long investing nightmare is almost over. Earlier last week, a private investment group announced that it had reached an agreement to purchase Maytag for $14 per share in cash and the assumption of the company's $975 million in debt.
Pummeled by fading brand value, uninspiring products, rising competition, and high costs, Maytag has been eroding for about six years. The company's problems bubbled again recently, as management guidance led analysts to halve earnings estimates and the board decided on a major dividend cut.
The problems that have bedeviled Maytag are nothing new in the world of consumer manufacturing. Inefficient manufacturing and sluggish responsiveness to consumer tastes allowed rivals like Whirlpool (NYSE:WHR), Siemens (NYSE:SI), Samsung, LGElectronics, and Electrolux (NASDAQ:ELUXY) to grow their businesses at Maytag's expense.
Interestingly, the company that nobody has really liked much lately seems to be getting a little extra love. Given that the stock is trading at a price above the announced deal, some investors are obviously taking the view that other, higher bids should be forthcoming. In addition to the aforementioned competitors, General Electric (NYSE:GE), is a potential acquirer. As for Electrolux, I personally doubt that it's in much of a position to be a player.
While that all makes a certain bit of sense, the announced buyout might not be a slam dunk either. Though the specifics of the deal haven't been publicly announced, the acquirer (Ripplewood) would appear to need some debt financing to close the deal. Given that Maytag's debt has recently been downgraded, and the market for junk debt isn't particularly strong now anyway, closing this cash-for-stock deal could be tough and might offer an opening for a rival bid.
In any case, there is a mix of good-news/bad-news lessons for investors here. The bad news is that popular brands don't guarantee financial success if management doesn't execute. What's more, dividends aren't guaranteed and a high-dividend yield is only attractive if the company has the ongoing financial wherewithal to pay up.
On the more positive side, though, here is another example where buying a large and well-known company provided some protection on the downside. While I don't imagine investors who paid $40 a share for Maytag a few years back are exactly happy with the idea of getting $14 a share in return, at least the company isn't going to go into bankruptcy and wipe out shareholders entirely. Sometimes famous brands do disappear entirely (Eastern and Pan-Am, for instance), but more often than not, purchasing the stock of companies with solid brands does offer some semblance of a floor to the stock's value.
For past Foolishness on Maytag, please check out these other articles:
The Motley Fool Inside Value newsletter can help you sort out the real values from the value traps. Try afree trial subscriptiontosee how we do it.
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
