Repost from The New York Times
In 2nd Try, Electrolux Reaches Deal to Buy G.E. Appliances Unit, for $3.3 Billion
By Chad Bray
September 8, 2014
Two of the biggest names in home appliances are joining forces after General Electric agreed on Monday to sell its century-old appliance division to Electrolux of Sweden for $3.3 billion in cash.
The deal will combine Electrolux’s Frigidaire, one of the best-known brands of refrigerators, with G.E.’s stable of products, including its Monogram line of luxury appliances. As part of the deal, Electrolux has reached a long-term agreement to continue to use the G.E. Appliances brand names.
The acquisition will nearly double Electrolux’s business in North America and is the latest move by Jeffrey R. Immelt, the chairman and chief executive of G.E., to refocus the conglomerate on its core industrial businesses. And it will put Electrolux on par with the Whirlpool Corporation, which posted revenue of $18.8 billion last year.
The deal is also the end of an era at G.E. as it cuts ties with one of its oldest business divisions, one that gave birth to the washing machine and dryer and the toaster oven.
The transaction is the largest ever for Electrolux, which began as a maker of vacuum cleaners in 1910 and expanded into home appliances in the 1920s.
“We think it’s transformational for us,” said Keith R. McLoughlin, the president and chief executive of Electrolux.
G.E. had tried to sell the division six years ago, with Electrolux and the Asian appliance manufacturers Samsung and LG among companies taking part in negotiations. But those talks fell apart with the onset of the financial crisis.
The talks restarted about a year ago and intensified in the last six months, Mr. McLoughlin said. G.E. and Electrolux publicly confirmed that they were in talks in August.
The acquisition of G.E. Appliances represents a major opportunity for Electrolux to expand its business in North America, one of the largest markets for home appliances.
Electrolux — already one of the world’s biggest manufacturers of home appliances and industrial equipment — posted revenue of 109 billion Swedish kronor, or about $15 billion, last year. G.E.’s appliance division generated $5.7 billion in revenue in that period.
Sales of major appliances in North America accounted for about 29 percent of Electrolux’s revenue in 2013, the company said.
On a pro forma basis, major-appliance sales in North America would have accounted for about 47 percent of its revenue if Electrolux and G.E. Appliances had combined last year, Electrolux said.
Mr. McLoughlin said that by nearly doubling its North American business, the deal would give it stronger purchasing power in negotiations with its suppliers.
Electrolux said it expected to achieve annual cost savings of about $300 million if the transaction went through, including savings from its improved leverage in purchasing.
The brands at both companies are also complementary. Electrolux is a leading brand in the premium segment, Mr. McLoughlin said, and Frigidaire is a “very strong mass market brand,” he said.
“There’s a big opportunity in the mass premium market,” where G.E.’s Café and Profile appliance lines fit in, Mr. McLoughlin added.
Analysts have said the acquisition of G.E. Appliances would give Electrolux more exposure to the premium appliance segment in the United States as the economy continues to improve.
Electrolux’s predecessor company, Elektromekaniska, was founded in Stockholm in 1910 and introduced its first vacuum cleaner, the Lux I, two years later.
The company began manufacturing its first vacuum cleaners in the United States in 1933 in Old Greenwich, Conn., where it later produced the first air-cooled refrigerator.
In 1984, the company acquired Zanussi of Italy, making it one of the largest suppliers of household appliances in Europe. In 1986, Electrolux acquired the Frigidaire and White-Westinghouse brand names when it purchased White Consolidated Industries.
In 2000, it bought back the rights to the Electrolux brand name in North America, which it had sold in 1968.
Shares of Electrolux rose 5.1 percent, closing at 197.10 Swedish kronor in Stockholm on Monday.
The deal, which is subject to regulatory approval, is expected to close in 2015. The transaction carries a $175 million termination fee if Electrolux is unable to win regulatory approval.
G.E.’s appliance division dates to the company’s early days and is the most direct connection that most consumers have with G.E. It introduced its first electric toaster in 1905 and the first electric range, the Hotpoint, in 1910. Its first electric washing machine for homes was introduced in 1930.
But the unit has been dwarfed by other G.E. business lines in recent years, namely its finance operations. Appliances and lighting accounted for only about 6 percent of G.E.’s $146 billion in revenue in 2013.
Since the financial crisis, Mr. Immelt has sought to reshape the company and return it to its core industrial focus.
The company has sold or spun off several of its noncore businesses in recent years, including NBCUniversal, its television and media empire, which it sold to the cable operator Comcast for about $30 billion in 2009.
In July, G.E. spun off its North American retail finance arm, now known as Synchrony Financial, in an initial public stock offering.
The sale to Electrolux “is consistent with our strategy to be the world’s best infrastructure and technology company,” Mr. Immelt said in a news release.
G.E. Appliances, based in Louisville, Ky., derives more than 90 percent of its revenue from North America. Its products include refrigerators, dishwashers, air-conditioners, washing machines, dryers and water heaters. The division employs about 12,000 people.
The transaction would also include a 48.4 percent stake in Mabe, a Mexican appliance maker. For nearly 30 years, G.E. has operated a joint venture with Mabe to develop and manufacture appliances.
G.E. was advised by Goldman Sachs and the law firm Sidley Austin, while Electrolux was advised by Deutsche Bank and Skandinaviska Enskilda Banken and the law firm Davis Polk & Wardwell.