Daikin Industries Ltd., the world’s largest air-conditioner maker, will buy Goodman Global Inc. for $3.7 billion to expand its home heating and cooling business in North America.
The companies and Goodman owner Hellman & Friedman LLC signed an agreement today under which Osaka, Japan-based Daikin will buy all of the closely held company’s stock, according to a statement. Daikin will use bonds and loans to help finance the purchase, and said it doesn’t plan to sell stock.
The deal gives Daikin more than 900 distribution points as it tries to boost sales for home heating and air-conditioning systems. Daikin fell the most in almost a month as Moody’s Investors Service said the acquisition may prompt it to cut the company’s credit rating.
“I’m a little worried about the size of the deal,” Shoichi Arisawa, a senior analyst at Iwai Cosmo Securities Co. in Tokyo, said by phone. “It may be a little too big for Daikin, especially in an uncertain time like this.”
Daikin shares fell 3.5 percent, the most since Aug. 1, to close at 2,073 yen in Tokyo trading. Shares are down 1.7 percent this year, compared with a 7.3 percent gain in the Nikkei 225 Stock Average.
The transaction will be completed by Dec. 31, pending regulatory approval, the companies said. Daikin plans to borrow money for the purchase from the Japan Bank for International Cooperation to take advantage of the “emergency facility to counter the strong yen,” it said in the statement.
The deal is an opportunity for Daikin to increase its business “where we have little presence,” Noriyuki Inoue, chief executive officer of Daikin, said at a press conference in Osaka. The deal will also help it expand in “emerging and high-volume markets,” he said.
Daikin’s credit rating may be cut because the transaction will have a “significant impact” on the company’s balance sheet and negatively affect its financial leverage, Moody’s said in a statement today. Daikin is currently rated A3 by Moody’s, the fourth-lowest rank among 10 investment grades.
Negotiations for the acquisition date back to 2010, and the talks broke off last year, with Daikin citing worsening economic conditions in the aftermath of Japan’s March 2011 earthquake and tsunami.
Daikin plans to invest further in Houston-based Goodman, which will continue to be managed as an independent business and keep its current management, according to today’s statement. The U.S. company has more than 4,500 employees, mostly in Texas and Tennessee, and generated $2.1 billion in sales last year, a majority of it in North America, it said.
“This is an opportunity for Goodman to grow globally as well as in the North American market by leveraging Daikin Group’s technical expertise, environmental technologies, and North American commercial expertise,” David Swift, chief executive officer of Goodman, said in Osaka.
Daikin had 1.22 trillion yen of sales in the year ended March and employs more than 44,000 people globally, with manufacturing and sales in more than 90 countries, it said.
Daikin generates 10 percent of its revenue in the Americas, according to data compiled by Bloomberg. Air conditioning accounts for 85 percent of its global sales, according to the data.
“U.S. housing starts have bottomed, so the deal makes sense from a cyclical timing perspective,” Christopher Cintavey, an analyst at BNP Paribas, wrote in a report today.
The deal would be the third-largest overseas acquisition by a Japanese company this year, according to data compiled by Bloomberg. The largest was Dentsu Inc.’s $4.5 billion purchase of Aegis Group Plc announced last month.
Japanese companies have spent about $50 billion on overseas acquisitions this year, according to data compiled by Bloomberg.
“Goodman is only strong in North America, so we can’t see how it will lead Daikin to success in emerging markets, where big growth is expected,” said Mitsushige Akino, who oversees about $500 million in assets at Tokyo-based Ichiyoshi Investment Management.
Founded in 1924, Daikin began as a manufacturer of aircraft radiator tubes and fluorine refrigerants, entering the air-conditioning business in 1951, according to the company’s website.