Electrolux Chief Dusts Off M&A Plan B After Deal With GE Failsby and
Chief says company has the balance sheet to do acquisitions
Review of Electrolux's other takeover targets will be made
Electrolux AB, foiled by antitrust regulators in its bid to expand in the U.S. by buying General Electric Co.’s appliance business, will now turn its attention to unearthing potential acquisitions in Latin America and other emerging markets.
GE’s decision to walk away from the $3.3 billion sale because of opposition from the Justice Department leaves Electrolux with few opportunities in the U.S. The Stockholm-based company typically monitors dozens of targets, and those opportunities will now be reviewed as Electrolux looks to add cleaning technology and expand in the Americas and other developing regions, where it’s underrepresented, Chief Executive Officer Keith McLoughlin said Monday.
“We’re not going to back up here,” the CEO said. "It’s rather accelerate forward. If we see an opportunity to make a transformational move, we’re not afraid to do that."
Now, McLoughlin’s challenge is to add scale to fend off competition from Whirlpool Corp., which last year spent $1 billion on a stake in Italy’s Indesit Co. The appliance market is increasingly competitive and global, and McLoughlin said he has a "pretty open lens" when considering what targets to pursue.
Even if it casts a wide net geographically, the company may end up expanding in developing countries. Before the GE deal, Electrolux aimed to get 50 percent of sales from emerging markets, “a target that would have disappeared had they bought GE’s appliances unit,” said Johan Eliason, an analyst at Kepler Cheuvreux in Stockholm. “If they now go back to their previous targets there may be a focus on emerging markets,” he said.
Targets in the U.S. are scant. The Justice Department sued to block the GE deal because it said Electrolux and Whirlpool would dominate the market for cooking appliances, creating a duopoly that would be able to raise prices on consumers and home builders. Electrolux and GE disputed that, with the Swedish company saying it would be able make more innovative products at lower prices.
“It won’t be easy to find something that is of the same size as GE -- there are no similar candidates out there that they can just go and buy,” said Karri Rinta, an analyst at Handelsbanken in Stockholm. “It was an exception that such a big company was up for sale for such an OK price.”
Electrolux, the maker of Frigidaire appliances, has run into snags with acquisitions in the past. The company agreed to buy Olympic Group of Egypt in late 2010 to tap demand in North Africa and the Middle East, just before the Arab Spring uprisings tipped the region into chaos. The deal closed a year later. Investors should look to Electrolux’s other deals, including the $690 million purchase of Compania Tecno Industrial SA of Chile, as proof of the company’s M&A credentials, the CEO said.
“The balance sheet is as strong as it has been for a long, long time," McLoughlin said. “Of course the GE transaction put a ceiling on what we could do in some other areas. This ceiling has now been lifted.” Electrolux will look for assets in the small domestic appliances segment and cleaning and cooking technologies, he said.
Electrolux should now look for joint ventures in China although “it should take a couple of months to digest this defeat,” DNB analysts including Christer Magnergard wrote in a note published Monday.
The Swedish company will also throw resources at research and development sites, and invest in existing facilities to broaden its product range. Western Europe, North America and Australia remain core markets for expansion, McLoughlin said.
Electrolux’s loss could be another’s gain, as GE has pledged to find another buyer for its appliances unit.
“Electrolux have, from a longer-term perspective, talked about the threat from Korean suppliers in the U.S., such as LG and Samsung, and that won’t disappear,” Rinta said. “If GE decides to sell to one of those suppliers, it would clearly be negative for Electrolux, but we don’t know how likely that would be.”