GE Majap Deal No Surprise To Industry

By Alan Wolf On May 19 2008 - 6:00am




GE's long-rumored plan to offload its venerable major appliance business didn't come as a surprise to industry observers.

The company, under pressure from shareholders and Wall Street after posting disappointing first-quarter earnings, was expected to formally confirm its plans after TWICE went to press last Thursday.

Industry sources told TWICE that the deal would likely center on a partnership arrangement, in which GE would retain minority ownership in the business and another white-goods manufacturer could produce appliances under GE's Hotpoint, GE, Profile and Monogram brand portfolio.

The conglomerate has reportedly hired investment banking firm Goldman Sachs to bid out the appliance unit, which generates about $7 billion in annual revenue. It is expected to fetch between $5 billion and $8 billion, according to The Wall Street Journal, which broke the story, dwarfing Whirlpool's $2.7 billion buyout of Maytag three years ago.

Potential bidders are believed to include Haier, which aggressively pursued Maytag during the 2005 auction; BSH, the German premium appliance manufacturer with production in South Carolina; GE's Mexican partner Controladora Mabe; and private equity investors.

It is unclear whether the deal would include GE's massive fulfillment infrastructure, upon which The Home Depot built its white-goods business — nor what impact a sale would have on the nation's No. 3 majap chain.

Industry observers said GE's appliance business, the second largest in the U.S. market after Whirlpool's, was an obvious target as the parent company came under pressure to divest its far flung portfolio.

"Management needed to do something, and appliances are not a core competency of GE anymore, they're not focused on it," said Warren Chaiken, president/COO of Almo Corp., one of the country's largest appliance distributors. "They can literally just move it out."

Appliance veteran Randy Johnson, merchandising senior VP of BrandsMart USA, said he isn't "shocked and totally understands" GE's decision to shed its majap operation, given the dramatic downturn in the white-goods industry. "It's the most serious situation I've seen in my 44 years in the business," he observed. "GE couldn't compete and they ran out of options."

Specifically, GE is hamstrung by its higher-cost prices, which leave little headroom for another round of expected industrywide increases in late summer, Johnson said. The division was also dealt a serious blow by the collapse of the contract builder business, which GE had long dominated and from which it derived as much as half of its revenue and a significant piece of its profits.

Johnson said a GE-Haier licensing deal would make sense for the Chinese importer by lending its higher-end products the cachet of the Monogram name.

Mike Abt, president of the white- and brown-goods dealership that bears his family's name, believes GE's move could prove beneficial to both the company and the industry, based on the outcome of the Whirlpool-Maytag merger.

"That turned out to be a great thing," he said. "Maytag is a much better company at this point. GE is a great company, and if it finds the right partner, they can make it run very well."

Abt feels that consolidation within the white-goods vendor community is inevitable, and parallels trends within the consumer electronics industry. "It feels unhealthy not to have a lot of people to buy from, but consolidation has to happen," he said.

For many, the biggest regret is the loss of another American manufacturing icon. "After all the years I spent with Maytag to see great American companies like this disappear ... it's staggering," said Bob Lawrence, CEO of the $11 billion Brand Source buying organization and an ex-Maytag employee. "We did everything to support GE Appliances, and they do a lot of good things. They do logistics better than anyone. I hope that doesn't change, because if it does it will impact independent retailers." — Additional reporting by Steve Smith

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