- Deal replaces failed $3.3 billion Electrolux agreement
- Haier offers premium to boost position in U.S. market
General Electric Co. agreed to sell its home-appliances business to China’s Qingdao Haier Co. for $5.4 billion after scrapping a deal with Electrolux AB last month.
The new pact’s premium over the $3.3 billion failed Electrolux agreement was driven in part by GE’s investment in the century-old unit to make it more competitive, said Chip Blankenship, chief executive officer of GE Appliances.
“We’ve been on a multiyear journey since 2012 to introduce new products, improve quality,” Blankenship said in an interview. “Our earnings are substantially improved.”
The quick turnaround from the Electrolux deal, which was canceled amid objections from U.S. antitrust regulators, advances CEO Jeffrey Immelt’s plan to focus the Fairfield, Connecticut-based company on industrial manufacturing. He’s selling the consumer-focused business -- which makes stoves, washing machines and microwave ovens -- and unloading the bulk of GE’s lending arm. Meanwhile, GE is expanding divisions that make products such as gas turbines, oilfield equipment and jet engines.
GE fell 2 percent to $28.49 at the close Friday in New York amid a broad market rout. The company’s shares rose 23 percent last year compared with a 0.7 percent drop in the Standard & Poor’s 500 Index.
Haier was one of several prospective buyers, including China’s Midea Group Co., in the final round of bidding, people familiar with the matter have said. Haier paid 10 times the appliance division’s earnings over the last year before interest, taxes, depreciation and amortization, GE said Friday in a statement.
The Shanghai-listed company said it paid a premium for GE’s long history, brand value and supply chain. Under the agreement, Haier can continue using the GE brand for 40 years, including in China.
“Haier had always fancied themselves the GE of China so now they get the real thing,” Steven Winoker, an analyst at Sanford C. Bernstein & Co., said in a note.
Buying a GE business that makes $8,500 refrigerators underscores the rise of a Chinese company once known for making inexpensive fridges for college dormitories. The deal -- potentially the largest Chinese purchase of an overseas electronics business, surpassing state-backed Tsinghua Holdings Co.’s plans for a $3.8 billion investment in Western Digital Corp. -- also highlights Haier’s global ambitions. The company wants to expand outside its own region and boost its 1.1 percent share of the U.S. market.
“It may be a step for the Chinese company to build up an international network while its overseas exposure now is still small,” said Andrew Song, an analyst at Guotai Junan Securities Co. “It’s also likely that they will have more synergy, as Haier is developing smart appliances.”
Haier has used international acquisitions to achieve quick expansion and to consolidate its overseas resources. The company bought control of New Zealand’s Fisher & Paykel Appliances Holdings Ltd. in 2012 and took over part of Sanyo Electric Co.’s washing-machine and refrigerator businesses from Panasonic in March to expand its presence in Southeast Asia.
In 2008, before the canceled Electrolux agreement, GE said it would explore options to sell or spin off the appliances business, concerned that it was too heavily tied to the tumultuous U.S. market. After the effort was stymied by the financial crisis, Immelt announced plans to invest $1 billion to make the appliances business more competitive.
GE Appliances will keep its headquarters in Louisville, Kentucky, and continue to be run by its current management team after the Haier sale. Blankenship said the deal will give the GE business greater resources to expand research and development.
The sale will generate an after-tax gain of about 20 cents a share after closing, which will be offset by restructuring costs, GE said.
The deal, which has been approved by both companies’ boards, is subject to regulatory and shareholder approvals, GE said. The company expects the sale to be completed in mid-2016. GE and Haier also entered into a long-term partnership around health care, advanced manufacturing and software-focused digital operations.