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Sector
Consumer Cyclicals
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Mid Cap
Market Cap £1.93bn
Enterprise Value £2.72bn
Revenue £3.95bn
Position in Universe 21st / 645

BREAKINGVIEWS-GE upset offers Asian buyers way into U.S. kitchen

Tue 15th December, 2015 1:11am
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.) By Quentin Webb HONG KONG, Dec 15 (Reuters Breakingviews) - GE's GE.N failed sale creates a domestic vacancy. While antitrust concerns nixed the $3.3 billion sale of the industrial giant's appliances unit to Electrolux ELUXb.ST of Sweden, GE still wants out of the U.S. kitchen. Stepping into GE's commanding position would be transformational for China's Haier 1169.HK or Midea 000333.SZ . As Breakingviews argued before the ill-fated Electrolux deal was struck last year, a GE takeover would be a "Lenovo-IBM 0992.HK IBM.N moment" for Qingdao-based Haier 1169.HK . That is, the deal would enable the Chinese group to hit the world stage like Lenovo did by buying Big Blue's personal computer division a decade ago. Haier already leads in U.S. fridges, with 19 percent market share last year, Euromonitor says, but is otherwise a bit player Stateside. Absorbing the GE unit would at a stroke add No. 1 or 2 rankings for microwaves, cookers, and dishwashers, plus handy relationships with customers such as retailers, landlords and builders. Haier could reap economies of scale and learn about targeting consumers in the world's biggest economy. Long-term access to GE's powerful brand would help too, if it was included as part of the sale. The same rationale also applies to Midea, Haier's $20 billion domestic rival. Both are sizeable companies with ready access to capital but low profiles in the West. (Haier's two listed units are the $9.4 billion Qingdao Haier in Shanghai and Hong Kong's $5.1 billion Haier Electronics.) Meanwhile, economic recovery means the U.S. market is looking up. And GE is clearly a motivated seller, which should keep a lid on price. Electrolux was paying an undemanding 7 or so times 2014 EBITDA. There are three drawbacks. First, neither Chinese outfit has much M&A experience, and indeed Haier's mould-breaking boss, Zhang Ruimin, seems to have cooled on overseas deals. Second, GE probably wants to move quickly, which could disadvantage a mainland buyer. Third, heavyweight competition might emerge. Whirlpool WHR.N is already too big Stateside. But other appliance heavyweights could be tempted, namely Bosch in Germany, Samsung 005930.KS in Korea, and Panasonic 6752.T in Japan. Each is a maybe not a definite: Bosch's brand is higher-end; Samsung is making creditable inroads Stateside on its own; and Panasonic has only recently emerged from financial crisis. But things could yet get heated in the American kitchen. On Twitter https://twitter.com/qtwebb. CONTEXT NEWS - GE said on Dec. 7 it had abandoned the sale of its appliance business to Electrolux of Sweden, five months after the U.S. Department of Justice sued to stop the deal. In September 2014 Electrolux had agreed to pay $3.3 billion for the unit, and assume $150 million of debt. - GE said it was entitled to a $175 million break-up fee from Electrolux. "The Appliances business is performing well and GE will continue to run the business while it pursues a sale," the U.S. industrial giant said. - In 2008, during an earlier attempt to sell the business, Chief Executive Jeff Immelt said other potential suitors included LG Electronics of Korea, China's Haier Group, Mexico's Controladora Mabe, and Arcelik of Turkey. RELATED COLUMNS Goose cooked urn:newsml:reuters.com:*:nL1N13W105 Out to dry urn:newsml:reuters.com:*:nL3N13W3CA - For previous columns by the author, Reuters customers can click on WEBB/ <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS www.breakingviews.com/TOPNewsSubscription ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Editing by Peter Thal Larsen and Katrina Hamlin) ((quentin.webb@thomsonreuters.com;)(Reuters Messaging:)(quentin.webb.thomsonreuters.com@reuters.net)) Keywords: GE ASIA/BREAKINGVIEWS
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