Electrolux may be takeover target
Bondholders are growing concerned that Electrolux AB, the world’s second-biggest maker of household appliances, may be a takeover target, according to traders betting on the creditworthiness of companies through credit-default swaps.
The perceived risk of owning Electrolux’s 4.4 billion Swedish kronor ($601 million) of bonds rose as much as 14% on Tuesday after the biggest increase in the company’s shares in two months. Credit-default swaps are financial instruments based on corporate bonds and loans that are used to speculate on an increase or decrease in indebtedness.
‘‘There’s been speculation there may be a takeover on the back of interest in that region from activist funds,’’ said Victoria Whitehead, a credit analyst at ABN Amro Holding NV in London. The credit-default swaps ‘‘are reacting to the volatility in the share price,’’ she said.
Electrolux bondholders are concerned an acquisition would add debt and lead to lower credit ratings. Buyout firms have said they are looking in Skandinavia at Volvo AB, Europe’s second-biggest truckmaker, and hospital operator Capio AB. Danish telephone company TDC A/S and ISS A/S, the Copenhagen-based cleaning company, lost investment-grade ratings when they were acquired in buyouts.
Stockholm-based Electrolux’s credit-default swaps on Tuesday rose to 37,000 euros, from 32,900 euros September 11, according to data compiled by Bloomberg.
A gain indicates deterioration in the perception of credit quality; a decline suggests an improvement. Investors who buy the contracts, sold by financial firms such as New York-based JPMorgan Chase & Co and HSBC Holdings Plc in London, are paid 10 million euros in exchange for the notes should the company default in the next five years. ‘‘We’ve noted the change in our spread, but it is based on market rumors and we never comment on rumors,’’ said Peter Nyquist, head of investor relations at Electrolux in Stockholm. Chief Financial Officer Fredrik Rystedt was unavailable to comment, Nyquist said. A total of 11.5 million Electrolux shares traded on Tuesday, the most since at least June and the second-busiest day this year, Bloomberg data show.
The shares rose as much as 6.6% to 121 kronor, valuing the company at about $5 billion. Electrolux, whose products include Zanussi washing machines and Eureka vacuum cleaners, said on July 18 it plans to pay a special dividend, as well as buy back stock.
A payout to shareholders can make the company less attractive to buyout firms by reducing cash or increasing debt.
The appliance maker’s second-quarter profit shrank 2.6% as the cost of transferring production to lower-cost countries grew and raw material prices, including copper and plastic, rose.
Electrolux this year fell behind Whirlpool Corp as the biggest home appliance maker when Benton Harbor, Michigan-based Whirlpool bought Maytag Corp. “Electrolux is a takeover candidate,’’ said Mondher Bettaieb-Loriot, who helps manage about $900 million at Swisscanto Asset Management in Zurich.
He sold Electrolux bonds in the past year on concern the company may be bought. Electrolux has the third-lowest investment-grade rating of Baa1 from Moody’s Investors Service and is rated an equivalent BBB+ by Standard & Poor’s.
—Bloomberg
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