GE looking to sell appliance division
By ANDREW ROSS SORKIN AND MICHAEL J. DE LA MERCED
Expected suitors include Haier of China; LG Electronics and Samsung,
both of South Korea; Bosch of Germany, and Electrolux of Sweden.
Published: May 15, 2008
http://www.iht.com/articles/2008/05/15/business/15ge.php
General Electric is planning to sell its appliance division, one of
the oldest businesses in the conglomerate's 120-year history, people
briefed on the proposal said Wednesday.
A sale of the unit, which makes refrigerators, microwaves and
washer-dryers, among other items, could fetch at least $5 billion,
these people said. GE and its investment bank, Goldman Sachs, have
been laying the groundwork for an auction over the last few weeks.
The appliance unit, which helped make GE an American icon, may end up
in foreign hands. Wall Street bankers are ru****ng to lay claim to
potential bidders, and the expected suitors include Haier of China,
which bid on Maytag two years ago; LG Electronics and Samsung, both of
South Korea; Bosch of Germany; Electrolux of Sweden, which makes
Sears's Kenmore line of appliances; and Controladora Mabe, a GE
partner based in Mexico.
The sale would mark the end of a brand of household products that made
General Electric a fixture in American homes over the last century.
Jeffrey Immelt, its embattled chief executive, has been trying to
refa****on General Electric in the face of widespread calls to break up
one of America's largest companies. That mission has taken on greater
urgency with the credit squeeze and the slumping economy, which have
affected many of GE's businesses.
The division, based in Louisville, Kentucky, has faced increased
pressure in recent years from Chinese manufacturers, which have been
growing at double-digit rates thanks in part to significantly lower
costs.
Asian manufacturers are expected to be particularly drawn to the
division, seeking to take advantage of GE's widely known brand name as
they try to become global businesses. Lenovo, the Chinese electronics
company, successfully acquired IBM's personal computer division in
2004, in part to help establish itself on the world stage.
As part of a potential sale, GE is likely to hand over a license to
use the GE brand for a short period of time, the people briefed on the
proposal said. After the initial license for using the General
Electric brand expires, the buyer of the appliance unit would be
allowed to continue to use the Monogram and Profile badges.
The arrangement is similar to the way Lenovo held onto the IBM badge
for several years before using its own.
The news was first re****ted on Wednesday by The Wall Street Journal on
its Web site.
GE's once high-flying stock price has fallen 20.5 percent during
Immelt's seven-year tenure, and many analysts and investors have
called for transformational changes at the cor****ate behemoth. Last
year, it sold its plastics business to Sabic, the big Saudi Arabian
industrial company, for $11.6 billion.
Immelt's critics long have urged him to consider more unit sales,
including the appliance unit, NBC Universal and GE Money, the
company's consumer finance unit. The company has focused on
higher-growth technology businesses of late, moving out of
consumer-oriented operations. GE's light bulbs, however, continue to
be made by the company's lighting division.
That critical chorus grew louder and more insistent last month when
GE's first-quarter earnings badly missed analysts' estimates and its
own projections.
GE's stunning announcement, made more notable by its status as a
barometer of the economy, shook Wall Street's confidence: the
company's shares fell 13 percent that day, its biggest one-day loss in
two decades. Even worse, for a company that prided itself on meeting
expectations, GE was forced to cut its projected earnings growth for
this year to 5 percent from 10 percent.
The appliance business generated $7 billion in revenue last year, only
a small fraction of GE's $173 billion in total annual revenue, but
divorcing it from the company would carry great historical im****t.
Begun in 1907 as a maker of cooking and heating appliances, it has
since grown to manufacture a broad range of products. Among its firsts
are the room air-conditioner (1930), the combined washer-dryer unit
(1954) and the toaster oven (1956).
As of last year, the appliances unit had about 13,000 of GE's 327,000
employees.
====================
My recommendation is that Haier gives this GE Division a clear NO. GE
Appliances is in trouble because of Haier and no name Chinese
manufacturers. Acquiring GE will just add the problems of an old
brand with its bloated legacy costs and practices to Haier's lean
manufacturing. And that's a $7 billion headache. Its cheaper and a lot
less risky to invest in new plants. Anyone acquiring a faded American
or EU manufacturer is asking for a hole in the head.
White goods are pretty low tech items. GE brings nothing to the
table, not even a respected name (goodwill value) as it it selling
under duress. Lenovo's experience in buying IBM should be a good
lesson. Lenovo lost big bucks on Big Blue. China's largest TV
manufacturer TCL was ruined by its purchase of Thomson SA of France.
In both cases the strategy was to buy a wellknown Western brand name
to gain quick entry and market share. Its a fool's game. These
brands had already failed and everyone knows a Chinese company brought
each of them. Why would anyone pay more for a badge when exactly the
same Made in China stuff can be blought cheaper elsewhere. Nobody
gives a damn about brands these days. All we want are reasonably good
stuff at unreasonably low prices.
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