Repost from the Wall Street Journal
Electrolux in Talks to Acquire GE Appliances
Swedish Company Wants to Expand Reach in North America
August 15, 2014
STOCKHOLM—Swedish appliance manufacturer Electrolux AB has held preliminary discussions about acquiring General Electric Co.’s appliance business, joining a group of other potential suitors considering a deal that could expand their reach in North America.
GE’s century-old appliance business, which along with lighting generated $8.3 billion in revenue last year, could help Electrolux Chief Keith McLoughlin’s drive to expand his company’s sales beyond Europe, where growth has been slow. Electrolux, with $15.9 billion in 2013 revenue, said in a statement Thursday that it has held discussions about a possible acquisition, but “no agreement has been reached and there can be no assurances that an agreement will be reached.”
GE, looking to possibly shed a profitable appliance business with low margins and significant labor costs, has also been approached by Electrolux rivals. Other potential bidders include South Korea’s LG Electronics Inc. and Samsung Electronics Co. as well as Arcelik AS of Turkey, a lower-cost producer, according to a person familiar with the discussions.
Quirky Inc. has teamed up with private equity firm Blackstone Group LP to work on a potential bid for the GE appliance business, a person familiar with the matter said. The five-year-old startup already has a partnership with GE in which they have teamed up to launch new products, including an air conditioner that can be controlled from a smartphone. GE invested $30 million in the company last year.
Quirky’s interest in GE’s appliance business was reported earlier by Bloomberg News.
“GE is evaluating a wide range of strategic options for our appliances business, including discussions with Electrolux and other interested parties,” GE spokesman Seth Martin said, confirming Electrolux’s interest but not naming other parties.
LG, Samsung and Arcelik couldn’t be immediately reached for comment.
Electrolux, whose home appliances include Frigidaire and AEG, is nearing the end of a restructuring designed to reduce overhead costs and revamp its manufacturing footprint. In recent years, it has been dogged by malaise in European markets, prompting Mr. McLoughlin to pursue growth in Asia and North America.
Electrolux has a history of expanding through acquisitions. It made a flurry of acquisitions throughout the 1960s, acquired Frigidaire in 1986, bought AEG’s household division in 1994, and bought Chilean appliance manufacturer CTI in 2011.
A clutch of major Nordic industrial companies have been acquisitive in recent years amid strong underlying economic conditions in Scandinavian countries, including Sweden, and many deals have been aimed at grabbing companies with manufacturing operations or customers near the U.S. market. Swedish lock maker Assa Abloy AB, for instance, has been hunting for American acquisitions, motivated by the view that the U.S. construction market will continue to improve.
Electrolux is doing better in Europe despite the continent’s darkening economic outlook, but weakness in Latin America was a key factor in the company reporting a 4.8% revenue decline in the second quarter. Electrolux’s products include refrigerators, dishwashers, washing machines, cookers, air conditioners and vacuum cleaners—with many of those products overlapping with GE’s product lines.
GE has a large share of the market for sales to home builders, one of the bright spots of the U.S. market. Electrolux has only a small share of that and has been trying to expand it.
The Swedish company recently opened a cooking-appliance plant in Memphis and remains eager to invest in the U.S. It is, however, losing market share in the region, while Korean makers are gaining steam.
Established brands like LG and Samsung likely would be mostly interested in the appliance business for its U.S. facilities rather than the GE name, the person familiar with the company’s plans said. It is unclear what Electrolux’s strategy would be.
GE executives believe that selling the appliance business for the right price is “consistent with strategic positioning,” this person said. But GE isn’t rushing to complete the sale by a certain date, such as year-end, this person added. “There’s not a dire need for cash.”
GE put the appliance business up for sale in 2008 but couldn’t find buyers or the right conditions for a spinoff amid the global recession. After the sale plan fizzled, GE committed almost $1 billion to reinvigorating its appliance product line.
GE’s appliance business has been focused on the U.S. market, and executives believe that a global footprint could be required to keep pace in the competitive appliance industry, one reason the company is strongly considering a sale, another person familiar with the matter said. But a sale wouldn’t necessarily mean the end of GE-branded dishwashers and refrigerators. There is a strong likelihood that the GE brand would live on after any deal, via a licensing agreement with a buyer, this person said.
More than 30% of Electrolux’s sales come from selling major appliances in North America. In its most recent earnings statement, Electrolux said the market demand for core appliances in North America increased 6% on the year and demand for major appliances, including microwave ovens and air conditioners, increased by 7% during the quarter.
But Electrolux’s own sales in North America were unchanged year on year. While sales in many of its core appliance categories continued to increase, sales of air conditioners declined significantly. Sales of refrigerators and laundry products were hurt by a fire at one of the company’s suppliers.
The company said operating income in North America improved due to price increases and focus on premium products. Demand for vacuum cleaners in North America increased while Electrolux had lower sales of small appliances, and operating income declined in this area.