- GE says it's entitled to a break-up fee of $175 million
- Electrolux says quarterly results to be hit by deal costs
Electrolux AB fell the most in more than four years after General Electric Co. abandoned plans to sell its appliance business to the Swedish manufacturer for about $3.3 billion because of opposition from U.S. antitrust regulators.
“The worst possible outcome became a reality,” DNB Bank ASA analysts including Christer Magnergard wrote in a note published Monday. “Electrolux can no longer pursue what would have been the largest transaction in its history -- a significant loss for the company.”
Electrolux needed the GE deal to gain scale in the key U.S. market and had decided to go to court to fight the U.S. Justice Department’s claims that the combined company and rival Whirlpool Corp. would be overly dominant in the U.S. cooking-appliance market. The deal was first announced in September 2014 and a judge began hearing arguments from both sides at a trial that got underway last month in Washington.
Electrolux shares fell as much as 15 percent, the most since July 19, 2011, and were trading down 11 percent to 212.30 kronor as of 12:26 p.m. in Stockholm.
“We’re disappointed and regret GE has taken this decision,” Electrolux Chief Executive Officer Keith McLoughlin said on a conference call. “Both companies have worked hard to get this thing done. We both knew this would be a difficult case. We’re disappointed, but certainly not defeated."
Costs Related to Deal
GE has requested to be paid a $175 million break up fee, both companies said.
Electrolux said costs of 402 million kronor ($47 million) tied to the deal have been incurred in the first nine months of the year, according to a statement. In the fourth quarter, transaction costs and integration costs would be about 175 million kronor while results for that period would also be hit by costs of about 225 million kronor from a bridge loan facility.
“The government took a very static unreal view of what is clearly a dynamic and competitive market,” McLoughlin said on the call. GE “felt like it was best to move on and explore other options for the business.”
At the trial, Electrolux argued it would be able to keep costs down and sell ovens and other products at lower prices to consumers. McLoughlin said on the witness stand that the takeover was “critical” to its ability to compete in the future. In contrast, the government said the Electrolux-GE combination and Whirlpool would have an unacceptably-high 88 percent of cooking ranges sold in the U.S.
‘Bad’ for Consumers
The Swedish manufacturer sells appliances under the brand names Frigidaire, Tappan and Electrolux while GE uses a number of names including GE Monogram and GE Cafe as well as Hotpoint. Some analysts including Handelsbanken analyst Karri Rinta had suggested Electrolux would have had to sell GE brands and dilute the deal “significantly” to make it acceptable.
“This deal was bad for the millions of consumers who buy cooking appliances every year,” the Department of Justice said in a statement following the collapse of the deal. “Electrolux and General Electric could not overcome that reality at trial.”
The Electrolux CEO said Monday that the judge for the trial has been informed that the agreement has been terminated.
Electrolux should now look for joint ventures in China although “it should take a couple of months to digest this defeat,” the DNB analysts wrote in the note. They estimate the costs related to the failed deal amount to 6.6 kronor a share.
"If we see a larger more transformative play as part of the portfolio we certainly would look at that," McLoughlin said on the call.
GE will seek an alternative buyer for the appliance division, which is "performing well," the Fairfield, Connecticut-based company said in a statement.