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Daikin Industries Ltd will buy Goodman Global Inc for $3.8 billion, gaining greater access to the North American market and making the Japanese company the world's largest maker of heating, ventilation and air-conditioning (HVAC) systems.

Daikin (6367.T) has long been interested in its Houston, Texas-based rival, but put off takeover talks following Japan's devastating earthquake and tsunami last year and then later due to uncertainty over the global economy.

The deal will strengthen Daikin's business in duct-type air-conditioners, where ducts are used to ventilate buildings, the prevalent technology used in the United States, analysts said.

"They've tried for so long to break into the U.S. residential air-conditioner market with their ductless technology, but it's just not happening, so acquiring into that market is the only way to go," said Edward Bourlet, a machinery analyst at CLSA Asia Pacific Markets in Tokyo.

Daikin gets less than 10 percent of sales in its major air-conditioning segment from the Americas, a market that includes Johnson Controls' (JCI.N) York, Lennox International (LII.N), and Ingersoll Rand Plc's (IR.N) Trane.

The Japanese firm, helped by a strong yen, will pay 296 billion yen ($3.77 billion) for Goodman in an acquisition that will allow it to overtake top-ranked Carrier brand maker United Technologies Corp (UTX.N) as the world's top HVAC maker.

Reports from Reuters and other media of the purchase from private equity firm Hellman & Friedman before its announcement caused Daikin shares to fall on Wednesday on worries that the price was too high.

SHARES FALL

Daikin shares tumbled nearly 9 percent in early trade, before trimming losses to finish 3.5 percent lower, its biggest daily drop in three weeks. The benchmark Nikkei 225 average .N225 settled 0.4 percent higher.

"The stock is being sold on the view that price of 300 billion yen is a little steep when you look at sales and other data from Goodman," said Tomoichiro Kubota, senior market analyst at Matsui Securities in Tokyo.

"(However) competing against Chinese rivals by boosting scale and location is a move in the right direction (for Daikin) and individual investors seem to be buying shares at the low prices," he added, after the stock trimmed losses.

Daikin will not turn to equity markets to fund the deal but use loans, its cash reserves and tap a bond issue of about 50 billion yen, a company official said earlier on Wednesday.

Daikin aims to complete the deal, which is Japan's third-biggest so far this year, in the fourth quarter of 2012. The Japanese firm expects 24 billion yen in strategic and efficiency benefits from the purchase in three years.

M&A

Backed by the strong yen, outbound M&As by Japanese firms had a total value of more than $46 billion in the year to date, slightly higher than the same period in 2011, when outbound deals hit a record for the calendar year, according to Thomson Reuters data.

In terms of Japan Inc.'s overall mergers and acquisitions for the year to date, 40 percent have been between domestic firms, while a third was with U.S. companies and 17 percent with Asian firms outside Japan.

San Francisco-based Hellman & Friedman bought Goodman Global in October 2007 for $1.8 billion in cash, including $1.1 billion of its own capital. The transaction also included assumed debt and other financing for a total of $2.65 billion.

The deal comes more than two years after Goodman Global filed for an initial public offering in May of 2010. The company withdrew its IPO registration later that year, and a source at that time said it had explored a possible sale to Daikin and other potential buyers.

The deal by Hellman & Friedman is the latest in a string of sales for the private equity firm this year which included offloading its holdings in photo agency Getty Images Inc and restructuring advisory firm AlixPartners.

($1 = $78.5000 Japanese yen)

This article is copyrighted by Reuters