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Voltas divests 26% in JV to partner Electrolux - Views on News from Equitymaster
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  • Dec 30, 1999

    Voltas divests 26% in JV to partner Electrolux

    The Swedish white goods major AB Electrolux has finalised a deal with Voltas to take over its 26% stake in their joint venture Electrolux Voltas. The joint venture owns the brand names ‘Voltas’ and ‘Allwyn’ and is into the manufacture of refrigerators (capacity: 0.25 million units per annum) and washing machines (capacity 0.1 m units per annum).

    This gives A.B Electrolux (the Swedish company) its second vehicle of operations within the country. A.B Electrolux already owns a listed company (which owns the Kelvinator brand) wherein its former partners, the promoters of Maharaja Appliances hold a 26% stake. There have been occasions in the past where the special resolutions that the Swedish major wanted to introduce have been defeated.

    While this buyout benefits the Swedish company as it now has total control over the JV, it does not in any way benefit the listed Indian company. It is also beneficial to the Swedish company as it has home appliance brands across the spectrum covering all segments. It is quite possible that AB Electrolux might increase its focus on this 100% subsidiary and launch new products or pass on technology to this subsidiary.

    Though it is also possible that these two companies might merge in future the company has not yet announced any such intentions. The merger would enable the company to consolidate its position in the refrigerator market whether this will benefit the shareholders would largely be dependant on the valuation ratios at the time of merger.

    For Voltas it is the culmination of a decision that was taken when the company decided to focus on air conditioning, engineering and chemicals and decided to exit from the home appliances business. However, Voltas sells its air conditioners under the ‘Voltas’ name itself. If the agreement with Electrolux allows them to continue with the brand name ‘Voltas’ for the air conditioners it will be a plus for the company since any promotion by Electrolux of the brand name will help Voltas. Further the cash infusion (the price of the deal is not known) will help the company to repay its Rs.180 million debt.

    Market View: Analysts rate Voltas as a ‘Buy’ since the household appliance market which is going through tough times has been divested, while the company has the core competency to run the businesses that remain within the company successfully.



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