Note 26 - Acquired and divested operations

Acquisition of Olympic Group

On September 8, 2011, Electrolux closed its tender offer for the shares in Olympic Group and acquired in total 59,074,122 shares representing 98.33% of the shares and votes in the company. The tender offer was launched in July 2011, following an agreement with Paradise Capital to acquire its 52% majority stake in Olympic Group. The total consideration for 98.33% of the shares in Olympic Group is SEK 2,556m, which was paid in cash at the beginning of September 2011.

Olympic Group is a leading manufacturer of appliances in the Middle East with a volume market share in Egypt of approximately 30%. The company has 7,100 employees and manufactures washing machines, refrigerators, cookers and water heaters. 

The acquisition is part of Electrolux strategy to grow in emerging markets like Middle East and Africa. Electrolux and Olympic Group have developed a successful commercial partnership in the region for almost 30 years, which today covers technology, supply of components, distribution and brand licensing.

Olympic Group, excluding the two companies Namaa and B-Tech, which were not part of the core business and was divested after Electrolux acquisition, had sales of about EGP 2.3  billion (SEK 2.5 billion) in 2010, and a recurring operating profit of about EGP 265m (SEK 280m). This corresponds to a margin of 11% and a net profit of about EGP 190m (SEK 200m).

Olympic Group is included in the consolidated accounts of Electrolux as of September 1, 2011, within the business area Major Appliances Europe, Middle East and Africa.

Following closing of the tender offer, Electrolux has sold Olympic Group’s shares in the companies Namaa and B-Tech and some additional assets to Paradise Capital for a total of SEK 522m, since they were not part of Olympic Group’s core business. According to the agreement with Paradise Capital, additional assets will be sold in 2012. Olympic Group also intends to launch a tender offer for the shares held by minority shareholders in Olympic Group’s subsidiary Delta Industrial-Ideal S.A.E. at a price of EGP 21.4 per share. The estimated total consideration for these shares will not exceed SEK 116m. The actual consideration to be paid will depend on the number of tendered shares.

Upon the completion of the above transactions, the total net consideration paid for Electrolux 98.33% interest in Olympic Group will be approximately SEK 2,135m.

Expenses related to the acquisition amounted to SEK 24m in 2010 and to SEK 43m in 2011 and have been reported as administrative expenses in Electrolux income statement.

The purchase price allocation concludes that goodwill amounts to a value of SEK 1,495m. The goodwill is attributable mainly to synergies in product development, production and sales and from gaining market presence in the North African region that is expected to grow economically going forward. None of the goodwill is expected to be deductible for tax purposes. The goodwill amount has been tested for impairment as a part of the Major Appliances Europe, Middle East and Africa cash generating unit.

Olympic Group has entered into a seven-year management agreement with Paradise Capital to ensure continued technical and management support to Olympic Group against a yearly fee of 2.5% of Olympic Group’s net sales. The fee is reported within administrative expenses.

The purchase agreement with Paradise Capital includes customary indemnity provisions which entitles Electrolux to be compensated under circumstances detailed in the agreement. 

The non-controlling interest in Olympic Group is 6.1% including the shares in Olympic Group’s subsidiaries currently held by minority shareholders, and amounted to a value of SEK 69m in the acquisition balance. The value of the non-controlling interest is calculated based on the non-controlling interest’s proportionate share of Olympic Group’s total net assets.

Acquisition of CTI

On October 14, 2011, Electrolux acquired 7,005,564,670 shares in Compañia Tecno Industrial S.A. (CTI) through a cash tender offer on the Santiago Stock Exchange. Electrolux also acquired 127,909,232 shares, representing 96.90% of the voting equity interest in the subsidiary Somela S.A., through a cash tender offer on the Santiago Stock Exchange.

In Chile, CTI group manufactures refrigerators, stoves, washing machines and heaters, sold under the brands Fensa and Mademsa and it is the leading manufacturer with a volume market share of 36%. CTI group also holds a leading position in Argentina with the GAFA brand and in Chile, Somela is the largest supplier of small domestic appliances. CTI group has 2,200 employees and two manufacturing sites in Chile and one in Argentina. In 2010, CTI group had sales of SEK 2.9 billion (CLP 203 billion). The acquisition is a step towards Electrolux growth strategy and provides significant revenue and growth synergies.

The shares acquired represents 97.79% of the voting equity interest in CTI and Electrolux thereby achieved control of the company. The cash tender offer was preceded by an agreement with Sigdo Koppers and certain associated parties, which held 64% of the shares in CTI, to buy their shares in the tender offer. CTI group is included in the consolidated accounts of Electrolux as of October 2011, and is included in the Major Appliances Latin America and Small Appliances business areas. The income statement of Electrolux includes 3 months of sales and income from CTI group.

The total consideration paid for the acquisition of the shares in CTI group was SEK 3,804m and was paid in cash in October 2011. The preliminary purchase price allocation concludes that goodwill amounts to a value of SEK 2,104m. This value may be adjusted when the purchase price allocation is finalized for, e.g., appraisal of buildings and land. The goodwill is attributable mainly to synergies in development, production and marketing of household appliances and from gaining market presence in the Southern cone of Latin America that is expected to grow economically going forward. None of the goodwill is expected to be deductible for tax purposes. The goodwill amount has been tested for impairment as a part of the Major Appliances Latin America and Small Appliances cash generating units.

The purchase agreement with Sigdo Koppers includes the right for Electrolux to be indemnified for certain environmental claims and tax claims amongst others.

The non-controlling interest in CTI group at acquisition is 2.36% and amounts to a value of SEK 41m. The value of the non-controlling interest is calculated based on the non-controlling interest’s proportionate share of the CTI group’s net assets. Subsequent to the acquisition, Electrolux has acquired a further 22,143,092 shares from minority shareholders for a total of SEK 17m.

Expenses related to the acquisition amounted to SEK 56m in 2011 and has been reported as administrative expenses in ­Electrolux income statement.

Revenue and profit from acquisitions

The revenue and the operating profit of acquired companies since their acquisition are SEK 1,690m and SEK –24m, respectively. This includes acquisition related entries, e.g., the effect of inventory revaluation. The revenue of Electrolux and the acquired companies combined would have been SEK 104,910m if the acquisitions had taken place on the first day of 2011. The calculation of profit for the combined entities from the beginning of the year is considered impractical and not disclosed. The main reason for this is that the entities had different accounting policies prior to the acquisitions.

Divestments in 2011 include the sale of the shares in the Egyptian companies Namaa and B-Tech as agreed in connection with the acquisition of the Olympic Group. The heating element operation in Switzerland, a non-core business in the professional segment, was divested in the first quarter. Further, real estate in Australia, Switzerland, Sweden and Egypt were sold during the year.

On September 9, 2010, an agreement to sell Baring Industries Division in USA, a unit in the Professional Products business area, was concluded. The divestment was made close to book value of the transferred net assets. An additional consideration of SEK 11m was received in 2011.