Acquisitions

Electrolux, the world's largest manufacturer of electrical household appliances, once pioneered the marketing of vacuum cleaners. However, not all products bearing the Electrolux name have always been controlled by the Swedish firm. For example, Electrolux vacuum cleaners were independently sold and manufactured in the United States from the 1960s until 1987. The Swedish firm also manufactures Eureka vacuum cleaners.

Electrolux pursued its early international expansion largely to gain economies of scale through additional sales. The Swedish market was too small to absorb fixed costs as much as the home markets for competitive firms from larger countries. When additional sales were not possible by exporting, Electrolux still was able to gain certain scale economies through the establishment of foreign production. Research and development expenditures and certain administrative costs thus could be spread out over (additional sales made possible by foreign operations. Additionally, Electrolux concentrated on standardized production to achieve further scale economies and rationalization of parts.

Until the late 1960s, Electrolux concentrated primarily on vacuum cleaners and building its own facilities in order to effect expansion. Throughout the 1970s, though, the firm expanded largely by acquiring existing firms whose product lines differed from those of Electrolux. The compelling goal was to add appliance lines lo complement those developed internally. Its profits have enabled Electrolux to go on an acquisitions binge. Electrolux acquired two Swedish firms that made home appliances and washing machines. Electrolux management felt that it could use its existing foreign-sales networks to increase the sales of those firms. In 1973 Electrolux acquired another Swedish firm, Facit, which already had extensive foreign sales and facilities. Electrolux acquired vacuum-cleaner producers in the United States and in France; to gain captive sales for vacuum cleaners, the company bought commercial-cleaning service firms in Sweden and the United States. Electrolux also bought a French kitchen-equipment producer, Arthur Martin, along with a Swiss home-appliance firm, Therma, and a U.S. cooking-equipment manufacturer, Tappan.

Except for the Facit purchase, these acquisitions all involved firms with complementary lines that would enable the new parent to gain certain scale economies. However, not all of the acquired firms' products were related, and Electrolux sought to sell off unrelated businesses. In 1978, for example, Electrolux bought a diverse Swedish firm, Husqvarna, because of its kitchen-equipment lines. Electrolux was able to sell Husqvarna's motorcycle line but could not get a good price for the chain-saw facility. Reconciled to being in the chain-saw business, Electrolux then acquired chain-saw manufacturers in Canada and Norway, thus becoming one of the world's largest chain-saw producers. The firm made approximately 50 acquisitions during the 1970s.

In 1980 Electrolux announced a takeover distinguished from those of the 1970s. It offered $175 million, the biggest Electrolux acquisition to date, for Granges, Sweden's leading metal producer and fabricator. Granges was itself a multinational firm (1979 sales of $1.2 billion) with about 50 percent of its sales outside of Sweden. The managing directors of the two firms indicated that the major advantage of the takeover would be the integration of Granges' aluminum, copper, plastics, and other materials into Electrolux's appliance production. Many analysts felt that the timing of Electrolux's bid was based on indications that Beijerinvest, a large Swedish conglomerate, wished to acquire a nonferrous-metals mining company. Other ob­servers thought that Electrolux would have been better off to continue international horizontal expansion, as it had in the 1970s.

Since the Granges takeover, Electrolux has resumed its acquisition of appliance firms. It bought Italy's Zanussi to become Europe's top appliance maker with 23 percent of that market. In 1986 it acquired White Consolidated Indus­tries, the U.S. manufacturer of appliance brands as Frigidaire, White-Westinghouse, Kelvinator, and Gibson. This made Electrolux the largest appliance maker in the world; however, this lead was short-lived, as Whirlpool acquired a controlling interest in the appliance business of Philips, a Dutch giant.

Meanwhile, other producers were growing through consolidation as well. Maytag, for example, acquired such brands as Magic Chef, Admiral, and Norge and then combined European operations with Hoover. The Electrolux president, Anders Scharp, said that industry consolidation would not allow for much more growth through acquisition of household-appliance firms. Further Electrolux acquisitions would concentrate on outdoor products and commercial appliances. One wonders whether Electrolux can continue making so many acquisitions because its sales have been increasing much more rapidly than its profits. The company has had a penchant for buying poor-performing firms cheaply and then spending heavily to turn them around.

Electrolux and its competitors were becoming global appliance producers even though this traditionally has been an industry in which companies have sold little outside their home countries. The varying sizes of kitchens from one country to another complicated international standardization of models, but Electrolux was betting that life-styles in the industrialized nations would be increasingly similar. If they were right, the company could take advantage of economies of scale in technical breakthroughs and designs. In 1990 Electrolux admitted its difficulty in streamlining operations. Within Europe alone it had 40 different brands of refrigerators selling 120 basic designs with 1500 variants, and the company was adding models to hit specialty niches. Meanwhile, Whirlpool has been adding its name (Philips/Whirlpool) to appliances sold in Europe through its acquired operations there. The plan is to drop the Philips brand name once European consumers accept the Whirlpool name.

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