Following negotiations that lasted almost one year, Chinese home appliance manufacturer Midea Group Co. (000333.CN) has agreed to pay 1.2 billion euros (US$1.34 billion) for a 25.1 percent stake in German robot maker Kuka.
The deal would make Midea the biggest shareholder of Kuka as it already owns 13.5 percent of the German company.
Midea had initially planned to offer more than 5 billion euros for the entire robot maker.
However, this did not sit well with German politicians who feared a loss of an important technology to the Chinese. It’s been reported that the German government wanted to limit Midea’s stake to less than 49 percent.
Midea pledged to keep the company’s existing headquarters, factories and jobs.
Established in 1898, Kuka is one of the world’s leading robotics companies.
Last year its revenue and net profit reached 2.9 billion euros and 85 million euros respectively, making it Germany’s largest robotics company and the fourth largest in the world.
Kuka focuses on tailor-made industrial robots for various manufacturers, building them for a production line of Coca-Cola and an aircraft engine plant of Boeing, among other projects.
On the other hand, Midea reported a revenue of 138.4 billion yuan and a net profit of 12.7 billion yuan last year, making it China’s largest appliance manufacturer.
The company has indeed gone a long way since He Xiangjian established it 1968 with a capital of only 5,000 yuan to produce plastic bottle lids in Shunde, Guangdong province.
It switched to making electric fans in 1985, air-conditioners and rice cookers in 1993, and gradually expanded into a wide variety of other electrical home appliances, including refrigerators, washing machines and microwave ovens.
Midea started out as an original equipment manufacturer for Japanese brands, and gradually built its own brands to become the largest appliance manufacturer in the world’s most populous market.
Midea’s sales revenue is more than six times that of Kuka, and its market value reached 156.5 billion yuan.
With over 10 billion yuan cash, Midea is financially capable to make the deal with Kuka.
Apart from financial strength, soft skills are also critical.
Midea mainly focuses on home appliances, which have limited complex technology.
It might face a huge challenge in technology and management after taking control of the world’s leading robotics maker.
In fact, there is potential synergy behind the deal. Industrial robots are arriving at an inflection point, and it’s expected to be applied in all production lines in the future.
Chinese manufacturers, in particular, are keen to transform themselves from sweatshops to unmanned factories run by robots.
Midea could take the initiative of introducing Kuka robots into its production lines. If successful, it could set up a role model for other Chinese manufacturers.
If that happens, Kuka can beat bigger rivals like ABB Group, Fanuc Corp. and Yaskawa Electric Corp., especially if Midea becomes its largest shareholder.
That’s why the German company is willing to sell a third of its stake to a Chinese company.
If everything goes well, the deal could become a game changer for Midea and send it to the ranks of the world’s leading cutting-edge technology firms.
This article appeared in the Hong Kong Economic Journal on July 5.
Translation by Julie Zhu
[Chinese version 中文版]
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