Midea Moves Aggressively into Robotics

Last month, US President Barack Obama made his first ever visit to the Hannover Messe industrial-technology trade show. During the opening ceremony, robots from Kuka performed a dance in front of President Obama and German Chancellor Angela Merkel.

Kuka is one of the top four robotics companies in the world, together with Fanuc, Yaskawa and ABB. It has more than 12,000 employees worldwide and its sales in 2015 amounted to more than EUR 3 billion. It is a worldwide expert on industrial robots, automation, and warehouse logistics. The company was founded in 1898 and the top three stock holders at the moment are Voith Group (15.1 percent), Midea (13.5 percent) and Friedhelm Loh (10 percent).

On May 17, Kuka received a friendly buyout proposal from Midea, an appliances company specializing in white goods based in Guangdong with annual sales of EUR 19 billion. Midea proposed to pay EUR 115 per share to buy the 86.5 percent of Kuka that it does not own. The price is significantly higher than the EUR 72.05 per share that Midea paid when it disclosed its last shareholding increase on February 3, 2016. The offer is contingent on Midea receiving not less than 30 percent of the company. It will cost EUR 4.4 billion if all stockholders accept the buyout offer. Midea is sitting on more than EUR 1 billion in net cash in its vault and can easily afford the required takeover funds.

Midea said that its intention is to become the biggest stockholder of Kuka and it welcomes the two other significant stockholders to stay in the company. The takeover offer complied with German law, which states that any single stockholder has to make a mandatory takeover bid once its shareholding reaches 30 percent.
 
Midea will get all shareholders’ consent to take Kuka private. It has pledged to keep the company running as an autonomous unit with the current management and employees staying. This pragmatic approach in taking over a European company is a hallmark of recent Chinese companies’ M&A activities in Europe. 

Midea has stated publicly that it intends to use Kuka’s technology to expand its robotics, automation, and warehouse logistics business in China. China is the biggest market now for industrial robots and spending on Kuka’s three specializations is expected to pick up significantly. In fact, Midea is a pioneer in these three areas in its own factories in China.  

Midea has announced that from 2011 till today, it has cut company employment from 196,000 to 105,000 while watching its sales remain stable from RMB 134 billion in 2011 to RMB 138.4 billion in 2015. At the same time, the company has spent RMB 5 billion to automate 20% of its factory systems and has installed 1,000 robots, while net income has doubled from RMB 6 billion to RMB 12 billion. Warehouse space for washing machines was cut from 12 million square meters to 100 thousand square meters through the adaptation of manufacturing as a service concept. Practically all 1 million washing machines produced monthly now are delivered to the customer directly with minimal staying time in the warehouse. 

The three giants in the Chinese white goods appliances sector, Midea, Gree, and Haier, are leading factory automation efforts in China. All of them have cut significant levels of employment in recent years and they have ambitious plans to start running “light-less factories” by 2018-2020. A “light-less factory” is a highly automated factory with minimal workers working 24/7, and lights in the factory are kept at a minimum. They are also pioneers in the application of manufacturing as a service concept in China. News from the field indicates that their dealer inventory has gone down more than 50 percent in recent years. 

The success of white goods appliances manufacturers will serve as a good blueprint for other manufacturing sectors of the Chinese economy seeking to increase automation and robot application. The pragmatic approach by Chinese companies in acquiring foreign technology will shorten the learning curve for them significantly. It seems that the promises of a fourth Industrial Revolution are not just a motivating battle cry, but a realistic economic target.