GE Seen Looking to Asia or PE as Electrolux Deal Implodesby
Samsung, LG considered possible bidders for appliance unit
Sanford Bernstein pares 4th-quarter earnings estimate 2 cents
Betting the third time’s the charm, General Electric Co. could turn to private equity or buyers in Asia for its home-appliances division after abandoning plans to sell the iconic business to Electrolux AB.
Samsung Electronics Co. and LG Electronics Inc. may be among the bidders now that the $3.3 billion deal has collapsed amid objections from the U.S. Justice Department, Deane Dray, an analyst at RBC Capital Capital Markets LLC, said in an interview. The South Korean companies were interested in the business in 2008, when GE tried to sell the unit without success.
“We would not be surprised to see a conversation with some of the Asian manufacturers,” he said. “It has to be someone where the DOJ won’t object, so it’s got to be lower in market share.”
A retreat from the appliances market would move GE almost entirely out of consumer-facing businesses as Chief Executive Officer Jeffrey Immelt refocuses on industrial operations making products including jet engines and oilfield equipment. After an earlier attempt to sell the appliances business in 2008 was called off, Immelt agreed in September 2014 to a deal with Electrolux for the century-old unit.
The Justice Department said an Electrolux-GE combination and Whirlpool Corp. would have an unacceptably high 88 percent of the market for ranges sold in the U.S. The deal would have been “bad for the millions of consumers who buy cooking appliances every year,” the government said in a statement following the deal’s collapse Monday.
GE called the Justice Department’s view “narrow” and said the transaction would have benefited consumers. “The appliances market is dynamic and highly competitive,” the company said by e-mail. GE said it will still try to unload the unit.
The company could court financial firms as possible buyers, according to Steve Winoker, an analyst at Sanford C. Bernstein & Co.
“GE’s appliances business has attractive assets likely to be attractive to a range of overseas buyers trying to gain entry into the U.S. market or, at a minimum, private equity players,” Winoker said in a note.
The company should be able to sell the appliances business by late next year or early 2017, Nicholas Heymann, an analyst at William Blair & Co., said in an interview. GE, which has continued to invest in the business, could eventually sell it for more than the $3.3 billion Electrolux agreed to pay since companies such as LG and Samsung may pursue a deal aggressively to boost their U.S. market share, he said. Heymann, Winoker and Dray rate GE shares outperform.
Representatives for LG and Samsung declined to comment.
GE fell 0.4 percent to $30.37 at the close in New York. Electrolux dropped 13 percent to 207 kronor in Stockholm, the most in more than four years.
Immelt said in October that the sale could push GE to the high end of its 2015 forecast of industrial profit of $1.13 to $1.20 a share. Without the deal, Sanford C. Bernstein’s Winoker said he is reducing earnings expectations in the fourth quarter by 2 cents a share.
Electrolux, seeking to add GE’s brands to its lineup that includes Frigidaire and AEG, needed the deal to gain size in the key U.S. market. It went to court to fight the Justice Department’s assertion that the combined company and rival Whirlpool Corp. would be too dominant in the U.S. cooking-appliance market. A judge began hearing arguments in Washington last month.
“We’re disappointed and regret GE” decided to pull out of the deal, Electrolux CEO 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.”
The deal allowed GE to pull out if it hadn’t closed by Dec. 7. The company said it has requested a $175 million breakup fee from Electrolux.