14558 Thu, 05/29/2008 - 3:17pm
By David Gill
FAIRFIELD, Conn.–The General Electric appliances division, manufacturer of one of America’s iconic product lineups for more than 80 years, could be headed for foreign ownership.
The mid-May announcement that the industrial giant is considering “strategic options” for the division has fueled speculation about a possible sale. Among the companies mentioned in press accounts as potential buyers of the division are Haier Group, based in China; LG Electronics, based in South Korea; Sweden-based Electrolux; and Bosch of Germany.
Spokesmen with Electrolux and LG said neither company comments on rumors as a matter of policy. Haier’s U.S. office declined comment, while calls to Bosch’s U.S. office were not returned by press time.
In 2005, Haier bid $1.28 billion for Maytag, which was later purchased by Whirlpool for a reported $2.6 billion.
GE said a sale of the division is just one option. Others include a strategic partnership or joint venture, and a spinoff. The statement said the division generates about $7.2 billion a year in revenues.
Talking to stock analysts on a Webcast of the Electrical Products Group conference last month, Jeffrey Immelt, GE’s chairman and chief executive officer, said the company is still exploring all of these options. “We’ll complete the best transaction for the shareholders,” Immelt said. “We’re going to look very carefully at a spin, an outright sale and a partnership.”
Regarding the possibility of a sale, Immelt said, “Most of the potential buyers are outside the U.S. We think the asset is extremely salable, even in a difficult market.”
Analysts who follow GE stock have speculated that a sale of the division could fetch anywhere from $3.8 billion to $7.2 billion for GE.
Some of those analysts have expressed concern regarding the timing of a possible sale.
“We question the cycle timing around the decision,” said JPMorgan analyst G. Stephen Tusa in a research note issued following the announcement. “With volumes declining and raw materials through the roof, this is far from the ideal time to sell an appliances business.”
Also commenting in a research note, Jeffrey T. Sprague, analyst with Citigroup Global markets, said, “Appliances is a tough business, and clearly not core to GE’s long-term strategy. However, a sale now, in the weakest appliance markets in 25 years, seems to risk leaving value on the table.”
Robert Cornell, analyst with Lehman Brothers, identified the GE core going forward as including its businesses in infrastructure, health care, commercial finance and NBC-Universal. Along with a possible sale of the appliances division, GE could also exit its GE Money and lighting businesses, according to Cornell.
GE declined any further comment beyond its statement and what Immelt said to the analysts on the Webcast.
Immelt said in the company statement that the options being discussed for the division are “consistent with the strategy we have been executing to transform our portfolio for long-term growth. Since 2003, we have exited slower-growth and more volatile businesses.” While GE remains a strong brand in appliances, Immelt added, “It remains primarily a U.S. business, meaning its fortunes are tied to the rise and fall of a single market.”
Comments from analysts indicate that GE could be under pressure to move fast on the appliances division, especially in light of the company’s poor performance in the first quarter. GE reported that its first-quarter earnings fell 12 percent from 2007’s first quarter, missing its own and analysts’ projections.