According to Reuters, Phillips (PHG) announced its intention to buy Shanghai-based Povos Electric Appliance Company, in order to further expand its household and consumer appliances business in Asia. The deal is expected to be completed by the fourth quarter of 2011. However, the financial terms were not disclosed.
Earlier in 2011, Phillips established its appliances headquarters in Shanghai. It also completed a strategic acquisition of an Indian kitchen appliances company Preethi, underscoring its intention to be a leading player in the global kitchen appliances market.
Povos primarily sells rice cookers, electric pressure cookers and kettles, all of which are commonly used in Chinese kitchens. Based in Shanghai, the firm has about 1,800 employees. According to a report by Global Times, in the first five months of 2011, Povos' domestic sales of home appliances totaled 400 million yuan, which was up 39% from 280 million yuan in the same period of 2010. Also, Povos is the third largest rice cooker producer in China with a 7.5% market share, according to 2011 January-April data from Beijing-based consulting firm China Market Monitor Co.
Therefore, the acquisition of Povos is a very strategic decision by the Dutch company as rice cookers are one of the most commonly used kitchen appliances in Asia. This deal, if not immediately accretive to earnings will definitely be in the near future.
However, traditional markets are not doing so good. In the recently concluded quarter, Phillips reported weak earnings and also issued a profit warning due to weak consumer demand in Europe.
Headquartered in Amsterdam, The Netherlands, Koninklijke Philips Electronics N.V. is one of the world’s largest electronics companies and the biggest in Europe, with sales of €23.2 billion in the full year 2009 and €25.4 billion for 2010. The appliances category comes under the company’s Consumer Lifestyle segment which generates about 35% of its total sales and is also the largest contributor among the other four segments.
It primarily competes with Siemens AG (SI) and currently holds a Zacks #5 Rank, which implies a short term recommendation of ‘Strong Sell’.
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