Electrolux Acquiring Zanussi Essay, Research Paper

Electrolux: The Acquisition and Integration of Zanussi

1) How would you describe the key characteristics of Electrolux and Zanussi in 1983, in terms of strategy, organization, capabilities, and performance?

International acquisitions have become an extremely important vehicle for growth for multinational companies. In this case, and because of the particular industry in which Electrolux operated in, the trend of the whole appliance industry was facing a long period of crisis. Although Electrolux was and still is one of the largest manufacturers of white appliances, many other manufacturers were now taking market share away from the Swedish company. For example, Philips and Siemens were now introducing a complete and economic line of brand new appliances. Electrolux’s core business was vacuum cleaners and absorption-type refrigerators. Electrolux was and still is the typical Swedish firm, which emphasizes on down to earth management: everyone works and keeps his word and all the information is correct. The firm emphasis on technology and advancement and the middle management is open to advises from the workers.

But at the core of Electrolux business strategy was the aggressive plan to expand through acquisitions. First, Electrolux concentrated on acquiring firms in the Scandinavian Area. Then the company continued focusing in purchasing companies that had assets but were not profitable so that they could turn their business around. After making more than 200 acquisitions in 40 countries, Electrolux was certainly one of the most experienced companies on the global scene as far as acquisition. But another important aspect of Electrolux, which helped them, maintaining leadership was the company’s great flexibility concerning new products and especially their attitude towards that company which excelled in some business where Electrolux was weaker. The greatest example of this was when the company purchased Husqvarna, a chain saw manufacturer, and how in little time, through this wise take over, Electrolux found itself as the world leader in chain saw manufacturers.

Electrolux never went looking for acquisition or bankrupt companies; their policy was to keep their eyes open that things will come by themselves. When Electrolux was ready to acquire a company, the financial statements of that company were very important. There was no standard method for treating acquisitions but Electrolux emphasized on fast action and on the eventual replacement of the top management in the poorly managed newly acquired firm. Electrolux preferred to change the top managers but to maintain the middle ones. Their goal was to understand and help the company to go back on track without often changing the marketing and sales staff. By 1983 Electrolux was one of the largest manufacturers of white goods with expansion taking place in Europe, North America, Latin America and the Far East. European sales accounted for almost 65% of total sales.

Although Electrolux was and is a multinational firm, one great characteristic of this company is their focus on decentralization. The subsidiaries are always considered as profit center and are evaluated primarily on their returns on net asset. Even the corporate headquarters as far as size, are really small compared to the impressive expansion that this company has witnessed. Zanussi, on the other hand, represent the typical Italian company, highly innovative and derived by the investment of a single person or family.

The company had a long history of success and innovation throughout Europe. The company started with wood burning cookers and became the leader of refrigerators and washing machines. Their expansion plan included offices in Paris and Spain. The Italian Company soon became a perfect example of vertically integrated manufacturer, which had total control of their activities, from production to final sales. The main problem of Zanussi was its strict dependence on their president, who accidentally died in an airplane crash. Zanussi was a very centralized firm. To this situation you have to add the bad diversification program that the company was implementing from a while. This resulted to be costly and to add to the company many unprofitable businesses, from televisions to coffee makers.

2) As Leif Johansson, would you have recommended the Zanussi acquisition in 1983?

Yes. Zanussi went into many unrelated businesses and neglected its core business. As a result their diversified businesses incurred heavy losses. In 1982 the company had debts amounting to over Lit 1300 billion and was losing over Lit. 100 billion a year. Although its core businesses were profitable the losses of the other business units were simply too high. Another major concern was the unprofitable Spanish appliance company IBELSA, which was owned by Zanussi. The Italian company had received subsidies from the Spanish government and in case of a breach of their commitment to try to boost the Spanish industry, they would have incurred in heavy fines. Electrolux was also facing another problem with Zanussi. In fact, Zanussi’s previous managing directors had sold equipment to a German company and then leased them back. Such transaction was illegal under Italian tax law. Electrolux wanted to buy shares in order to rescue Zanussi. Electrolux was able to integrate the new acquisition since it was a supplier as well as a distributor. Certainly, the acquisition of Zanussi gave Electrolux the opportunity to take control of the supplier and the distribution channel. Also, Electrolux could use Zanussi’s products to expand its product lines as well as expand geographically. In fact, Electrolux had a large market share in Scandinavia where Zanussi was almost absent, while Zanussi had a large market share in Italy and Spain, where Electrolux was not very present. Zanussi was also strong in France. Finally, I have to reinstate my previous opinion: I would have definitely recommended Leif Johansson to acquire Zanussi.

3) What lessons, if any do you draw from Electrolux’s approach to acquisition decision-making?

One lesson that can be learned from Electrolux’s decision-making approach in acquiring Zanussi is that Electrolux always had a good, defined and planned strategy and very experienced managers. Electrolux had seemed to have clearly specified objectives and during the acquisition process its managers never left out the details, they did not cut corners and most important the company was always determined to complete the phase of integration in no more than six months. Also the philosophy of Electrolux was pretty peculiar and to put it in Anders Scharp words: ?You never choose an acquisition, opportunities just come”. Electrolux made a point that when acquiring a company that is in trouble they always evaluate the possibility if the other company can be rescued or not. Electrolux managers look at the other firm and study if the acquisition make sense and if it could be successful or not.

4) What lessons do you draw from Electrolux’s approach to acquisition integration? What would you have done differently?

From this case a lot can be learnt about the acquisition integration approach. Zanussi had many commitments at the time of the acquisition. Therefore it was very important for Electrolux to find out what the possible risks, fines and penalties would be. One important factor was that Electrolux had to deal with union issues. But also management and organizational philosophy, politics and the way production was done were problems that Electrolux had to consider. The unions in Italy, like in the rest of Europe, are very important and influential. The Italians at the beginning didn’t like the idea of being acquired by a “northern” company; they would have preferred Zanussi as independent or subsidized by the Italian government. Their main concern was the possible shift of power and decision making authority to Sweden and, just like many mergers, the possibility of laying off big part of the Zanussi’s entire work force. However, Electrolux dealt with the situation in a different manner. Yes they reduced Zanussi’s work force but they did it through forcing some people into early retirement and in stopping the hiring process.

Another important issue had to deal with SELECO, an Italian producer of television sets. A majority of SELECO shares were held by REL and the rest by Zanussi and another company. Zanussi was committed to buy REL’s majority holdings of SELECO and although Electrolux had no intention of entering the television business they agreed. The other dispute had to do with the Spanish appliance company IBELSA. Electrolux accepted this term as well. But the one term that Electrolux did not accept was the dispute on some machinery buy back that previous Zanussi’s managers did by breaking Italian tax laws. Electrolux refused to assume such a risk until the Italian government promised them not to take any punitive actions against the Swedish firm. Another important issue had to do with the financial structure of the company. Electrolux was simply not willing to take over a majority ownership of Zanussi since this would have had major effects on the bookkeeping records of Electrolux. It would have also affected negatively the Electrolux’s share price. To solve this problem a consortium made of few Italian financial institutions was established and took on a large part of the shares while Electrolux maintained 49%. Now Electrolux had to deal with the integration process of Zanussi. When Electrolux visited the Italian factories they found old technology that needed to be changed, updated and more automated in order to come up with better quality products. But Electrolux executives came across a very skilled and knowledgeable workforce. Another issue Electrolux faced after the acquisition was the organizational structure and management. Electrolux was and wanted a decentralized structure within the company. After the acquisition, a management development workshop was held. The goal was to help improve communication within the organization and to improve team spirit. Also from this workshop came out the new mission and principle of Zanussi, which was now much more focused on the customer satisfaction and service. Finally, Electrolux implemented for this acquisition its studied game plan and showed that is vital to look at all the possible issues before deciding whether to acquire a company or not.

5) What strategic and organizational challenges remain for Electrolux in 1988? What are the main options?

After the acquisition of Zanussi was completed, Electrolux was now facing another important issue. It had to smoothly integrate Zanussi’s products and define their position in the market. One of the main reasons why this acquisition was successful was the attitude, which Electrolux assumed toward Zanussi. It almost never seemed to be an acquisition but rather a partnership. Electrolux and Zanussi kept their respective names in the countries were they had the most success for brand recognition purposes. Now, the new company had to expand. After Europe and partially the United States, there was still much to do. Therefore the company looks at the Far East as a possibility. The only possible way to enter the Asian market was through a joint venture. Expansion would only increase the global presence of Electrolux especially in an industry in which competitors are not waiting for your next move. One of the most threatening and serious competitors of Electrolux is Whirlpool, which in Europe is gradually taking market share away from Electrolux thanks to its line of more economic appliances that compete directly with Zanussi’s products. Electrolux must take advantage of economy of scale; it must be able to produce in large quantity and at a lower cost.

6) What should Leif Johansson do now?

Leif Johansson has to continue monitoring the process of acquisition with Zanussi. Although a lot of time may have passed and everything seems to run smoothly, there is always the problem that integration takes more time than expected and especially when dealing with different cultures. He also has to put a lot of emphasis on the research and envelopment of new and better products. Understand that in today’s market the consumer pretends the best for less. Innovation has always been a key element and in fact it has shown when Zanussi introduced the Jet System and boosted Electrolux’s overall value.

Also, in this industry, the company has to show to the public their continuous support for environmental friendly products and promotions. Mr. Johansson has also to cut down costs in order to stay competitive. As far as expansion, Mr. Johansson should not stop looking for new possibilities, especially in Asia and Latin America, and when the time is right move forward for companies that like Zanussi constitute a great match for Electrolux.

7) What is the current corporate strategy of Electrolux? Has Electrolux made any additional acquisitions? If so, in what countries? What industries? How has the firm’s financial performance been influenced by this strategy?

Visiting the World Wide Web I came across Electrolux page and I found additional information about the company and its products. The web page was very clear and user friendly and it shows that this company means serious business. In fact, Electrolux is the world’s largest producer of powered appliances. They sell more than 55 million products, ranging from refrigerators to vacuum cleaners to chain saws, in more than 150 countries.

After 1988, Electrolux acquired more companies, not only for product expansion but also for expansion in emerging markets. Electrolux grew steadily and its sales amount to SEK117 billion in 1999 comparing to 67 billion in 1987. Electrolux signed an agreement with sharp to sell its products in the Japanese market. In 1990 they expanded its presence in the US outdoor product market by acquiring Allegretti & Co. In 1991 they also acquire Lehel, a Hungarian white goods company, and they introduce the low energy line of refrigerators. By this date Leif Johansson is appointed president. 1994 was the 75th birthday for Electrolux. In 1996 they expanded in Brasil by acquiring Refripar and the next year the company announced a major restructuring plan with the purpose of improving its profitability. By 1998, Electrolux got out of the business of sewing machines, agricultural implements, interior decorating equipment, kitchen and bathroom cabinets and heavy-duty laundry equipment. Now, Electrolux core business consists of household appliances, professional appliances and outdoor products.