Tokyo: Japan’s Daikin Industries, the world’s second-biggest maker of air conditioners, is in talks to buy US-based rival Goodman Global Group from a US buyout firm, Bloomberg news reported on Tuesday.
Hellman & Friedman is negotiating a revised proposal for Goodman after rejecting a roughly ¥300 billion ($3.6 billion) offer from Daikin, the news service said, citing an unidentified source with knowledge of the matter.
A Daikin spokesman declined to comment. Representatives at H&F were not immediately available.
Acquiring Goodman Global would make Daikin the world’s largest air conditioner maker, surpassing United Technologies Corp unit Carrier, and accelerate its expansion outside the saturated Japanese market.
Daikin shares closed down 3.8% at ¥2,993 on the report, underperforming a 0.3% fall in the Nikkei benchmark, reflecting investors’ worries the company would look to issue shares to finance such a deal.
CLSA analyst Morten Paulson estimated that Daikin’s debt-to-equity ratio would jump to 1.3 from 0.8 if it tried to fund the acquisition with straight debt.
“That’s not impossible, but I believe management would prefer to keep it to 1.1. I guess that they would need to finance about ¥200 billion in debt, ¥100 billion in equity. That would give the stock about 10% dilution,” he said.
“I can probably see it from the company’s perspective that they would like to break into the US, but personally I would probably rather see them using more resources on emerging markets.”
Daikin, which took over Malaysian-based O.Y.L. in 2006, has touted its ambition to become the world’s biggest player in the heating, ventilation and airconditioning sector (HVAC).
H&F, a San Francisco-based private equity firm, agreed to pay $1.8 billion in cash for Goodman Global in October 2007, including $1.1 billion of its own capital. The transaction also included assumed debt and other financing for a total of $2.65 billion.
On that basis, the private equity firm will make nearly 3.5 times its original investment if it sells the company for $3.63 billion.
Last month, Goodman Global withdrew an initial public offering in which it planned to raise up to $500 million to pay down debt.
Backed by the strong yen, outbound M&A by Japanese firms has doubled with a total value of $31.5 billion in the first nine months of 2010, the second highest volume recorded for the period since 2000, according to Thomson Reuters data.
In terms of number of announced deals, the period marked the highest ever with 367 deals. The US remains the most targeted nation based on number of deals by Japanese companies, with China in second place.