Electrolux AB shares fell the most since 2011 after the U.S. government sued to block the Swedish company taking over General Electric Co.’s appliance business.
The stock slumped as much as 11 percent to 234.5 kronor, the steepest intraday drop since July 2011.
The Department of Justice’s challenge presents an obstacle to a purchase that sent Electrolux shares to the highest since at least 1989 when it was announced in September. The Swedish company has said it expects the transaction to add to earnings in the first year, creating a business with annual revenue of about $22.5 billion and setting the stage for future takeovers.
“This development clearly increases the risk of the deal not going through,” Johan Eliason, an analyst at Kepler Cheuvreux, said in a note, cutting Electrolux stock to hold from buy. “Legal processes are difficult to forecast.”
The suit challenges the acquisition on the grounds that it would hurt consumers and comes after months of discussions between the government and the Stockholm-based appliance maker.
Electrolux said Wednesday it’s willing to fight U.S. antitrust officials to ensure it succeeds in concluding the $3.3 billion acquisition before the end of the year. Lawyers for the company said there’s no justification for the suit.
Electrolux agreed in September to acquire the century-old GE unit in a transaction that would put the company on par with industry leader Whirlpool Corp. in the U.S. Electrolux said when announcing the deal it would pay a fee of $175 million in certain situations involving rejection from regulators.
Chief Executive Officer Keith McLoughlin told analysts Thursday he’s “cautiously optimistic” about the prospects of reaching a settlement before or during the court proceedings, which he said may take as long as six months.
Electrolux said the DoJ’s concerns focus on cooking appliances in the so-called contract channel, where retailers sell in bulk to homebuilders and property managers. GE, Electrolux and rival Whirlpool control more than 90 percent of such sales, the U.S. has said.
“This could be addressed by the disposal of the Hotpoint cooking business, part of GE,” said JPMorgan Chase & Co. analyst Andreas Willi. “We don’t know whether this was not sufficient or was not proposed by GE and Electrolux.”
McLoughlin said a “partial acquisition” wouldn’t make sense, and that the reason for the deal is that competition in the U.S. appliance market has intensified in the past decade.
Electrolux will soon receive the DoJ’s documentation as it prepares for the court case, and will be able to better understand how to address the DoJ’s concerns, the CEO said.
Separately, in reference to a report last month in Swedish newspaper Dagens Industri that said he was resigning, the CEO quoted Mark Twain and said he’s seeking a successor to take on his interim role leading the North American appliance business, though he’s committed to remaining in charge.
“Reports of my death have been greatly exaggerated,” he said.