General Electric agreed to sell its appliance division to Chinese manufacturer Haier for $5.4 billion. The deal comes just a year after GE’s deal to sell its appliance division to Swedish manufacturer Electrolux collapsed.
Laurie Burkitt, Joann S. Lublin and Dana Mattioli of The Wall Street Journal had the day’s news:
General Electric Co. agreed to sell its appliance unit for $5.4 billion to Chinese manufacturer Haier Group, which is looking to expand its products into homes around the world.
GE and Haier announced the deal Friday, saying the companies will cooperate world-wide to expand their reach in health care, advanced manufacturing and the industrial sectors.
The deal will help Haier sell refrigerators, washing machines and other appliances that are already popular in China overseas after years of struggling to gain a stronger foothold in the U.S. and elsewhere. Haier said it will have the rights to use the GE brand for appliances for 40 years.
The acquisition also enables GE to focus on its industrial business—jet engines and power turbines instead of washing machines and even finance.
“Haier has a good track record of acquisitions and of managing brands,” GE’s chairman and chief executive officer Jeff Immelt said in a news release. “Haier has a stated focus to grow in the U.S., build their manufacturing presence here, and to invest further in the business.”
Amie Tsand of The New York Times explained why GE is not worried about a potential antitrust violation:
Seth Martin, a G.E. spokesperson, said on Friday that the company did not foresee any antitrust concerns with the Haier deal because it had a smaller market share than Electrolux.
He added that the value of the deal had been bolstered by an increase in the unit’s profitability since the deal with Electrolux was reached.
G.E. said the deal valued the appliances unit at 10 times the past 12 months’ earnings before interest, taxes, depreciation and amortization. It will generate an after-tax gain of about $0.20 a share. The appliances division had revenue of about $5.9 billion in 2014 and employs 12,000 people.
G.E. added that it would offset the gain with a restructuring, details of which it would disclose when it discussed its fourth-quarter earnings this month.
The company will continue to use the G.E. Appliances brand, and the unit’s headquarters will remain in Louisville, Ky.
“Haier is committed to investing in the U.S. In addition, together Haier and G.E. will explore opportunities for joint collaboration and, in doing so, establish a type of new alliance, with comprehensive strategic cooperation between two world-class enterprises, which reflects our common understanding on opportunities brought by the Internet Era,’’ the chairman and chief of Haier Group, Zhang Ruimin, said in the news release.
Scott Cendrowski of Fortune compared the deal to when Lenovo bought IBM’s PC business:
GE has been trying to unload its white goods business since December, when antitrust regulators scrapped its $3.3 billion sale to the Swedish brand Electrolux AB .
It’s not the first time Haier has been interested. In 2010, Haier said it was interested in GE’s appliance unit but didn’t buy because the price was too high, according to the Wall Street Journal.
The deal for GE’s appliance division, which enjoys a strong brand, is similar to Lenovo’s purchase of IBM’s PC business a decade ago for $1.25 billion. That deal, despite the downturn in the PC business and initial skepticism, is now thought of favorably for Lenovo for giving it an entry into international markets (where it would later buy Motorola and IBM’s server business) and producing reliable cash streams.
In a release, GE said its GE Appliances unit would continue marketing current GE brands for 40 years.
