Very few of the good things that General Electric has brought to life for more than a century will be for everyday consumers any more if yesterday’s deal to sell off its appliance business to Sweden's Elect rolux for $3.3 billion passes regulatory oversight, as is expected, and closes next year.
“The GE unit sells refrigerators, stoves, air conditioners and water heaters under the GE Monogram, GE Cafe and Hotpoint brands, report Reuters’ Simon Johnson and Sven Nordenstam, and Electrolux “sells under brands such as Frigidaire, AEG and Zanussi as well as its own name.”
“Today’s announcement is consistent with General Electric’s longer-term redeployment of capital from non-core assets (media, insurance, etc.) to higher-growth, higher-margin infrastructure businesses in Oil & Gas, Power, and Aviation, with support from specialty finance businesses,” write in a note cited by Barrons' Ben Levisohn.
Andrew Inkpen, a professor at the Thunderbird School of Global Management, puts it more directly in an interview the AP’s Jonathan Fahey: “They are no longer going to be a consumer company.”
The acquisition gives Electrolux a combined market share of 40% in the North America appliance business, meanwhile — about the same as that of U.S. manufacturer Whirlpool,” report the Wall Street Journal’s Christina Zander and Jens Hansegard, who point out that “the appliance industry is becoming more and more about economies of scale.”
“Whirlpool agreed to pay more than $1 billion this summer to acquire a majority stake in Italian company Indesit Co., a purchase that would roughly double Whirlpool's business in Europe,” they write.
“New features need to be introduced at an ever-increasing pace and this acquisition means Electrolux’s R&D investments can be applied to larger volumes,” Kepler Cheuvreux analyst Johan Eliason tells the reporters.
An earlier attempt to sell the appliance division fell apart with the onset of the financial crisis in 2008, Chad Bray reports in the New York Times, with Samsung and LG also interested at the time. The talks with Electrolux started up again about a year ago.
“Electrolux and GE executives avoided predicting what's ahead for operations in Louisville and elsewhere — except to say that Electrolux's North American headquarters would remain in Charlotte, N.C., reports the Courier-Journal in Louisville, Ky., home to about 6,000 GE workers at Appliance Park.
Electrolux CEO Keith McLoughlin “expressed confidence that the two companies would make a ‘powerful’ combination that should strengthen the enlarged business,” however. “One plus one should equal three,” he said.
“GE Appliances is a well-run operation with strong capabilities in key areas such as R&D, engineering, supply chain and customer service, and we look forward to joining forces with their team of talented and competent people," McLoughlin said in a joint statement announcing the deal.
The brands at the two companies are complementary, according to Bray’s piece, with McLoughlin pointing out that Electrolux is a leading brand in the premium segment and Frigidaire is a “very strong mass market brand.” McLoughlin also sees “‘a big opportunity in the mass premium market,’ where GE’s Café and Profile appliance lines fit in,” Bray writes.
McLoughlin tells Hansegard and James R. Hagerty in the Wall Street Journal’s main story that GE's dominance in sales to homebuilders was “a chief attraction of the deal.” It has been trying to expand its small share of that market.
“Another advantage, he said, is that GE has the capacity to make washing machines in the United States. Electrolux has been importing some machines from Mexico that are subject to import duties of about 33%.”
The transaction “was no fire sale,” write Gary Strauss, David Kender, Keith Barry and Grace Schneider in USA Today, with GE taking its time to find a buyer.
“Knowing GE, they are very particular about their brand,” Dinesh Kithany, senior analyst of home appliances at IHS, tells them. “They need the consumers to be taken care of after this deal is signed in terms of warranties and all the after-sales service.”
Fairfield, Conn.-based GE will still have a presence in American homes through its lighting business. “… Based in East Cleveland, Ohio, [it] traces its roots to 1879, when Edison invented the first commercially practical incandescent lamp,” according toBloomberg Businessweek’s Richard Clough. “The inventor’s business interests around light bulbs and related technology became the precursors to GE, which was formed in 1892.”
But William Blair & Co. analyst Nicholas Heymann tells Clough that “lighting is the next piece of the classic GE businesses that are not a critical part of the refocus on infrastructure-related businesses.”
In other words, expectations are that GE will be shutting the lights off on its way out of the house.