Jeff Immelt, General Electric’s CEO, confirmed that along with LG Electronics, several other foreign companies are contenders to buy GE Appliances.
During press conferences in Seoul, Korea, and Bejing, China, last week, Immelt was quoted in reports by Reuters and the Wall Street Journal that LG — along with China’s Haier, GE’s Mexican partner Controladora Mabe and Turkey’s largest majap maker, Arcelik — are possible suitors.
Immelt described LG as a leading candidate, and said strategically there are many things to be admired about a combination of the two businesses.
For his part, LG’s CEO Yong Nam confirmed that his company is taking a look at GE’s white-goods division, although the manufacturer said in a filing that it hasn’t made any decisions yet.
Nam noted that a sale of GE’s majap business, which includes manufacturing, a distribution and fulfillment network, plus repair and support services, “has the potential to change the structure of the world’s appliance industry.”
On the surface, LG would seem a likely candidate for the deal, which would support its strategy of being a top-five global majap maker. Both companies also have a shared history as suppliers of The Home Depot, for which GE provides all white-goods inventory management and fulfillment.
However, LG has already spent hundreds of millions of dollars to break into the U.S. market, and has established a successful upper mid-tier niche for its LG-branded laundry and refrigeration products. Those platforms are positioned well above the price-driven mass market segment that has disproportionately suffered during the downturn in the U.S. white goods market, and where much of GE’s sales volume is centered.
What’s more, despite the weak U.S. dollar, Korean analysts doubt that LG could swing GE’s estimated $5 billion to $8 billion price tag without assuming massive debt.
Price may also be an issue for Haier, China’s largest majap manufacturer. According to a Reuters report that quoted a person close to CEO Zhang Ruimin, the chief executive regards a GE deal as Haier’s last and best chance to get into the U.S. market, but isn’t sure how to pay for it.
Haier, which already maintains a presence here through Haier America, a joint U.S. operation, had attempted to become a major domestic player by bidding for Maytag two years ago with backing from private equity firms Blackstone Group and Bain Capital. Analysts believe that Haier would again have to find private equity partners were it to make a play for GE.
In Bejing, Immelt threw in Electrolux as another candidate and was quoted as saying, “The appliance process is still very early on, and much still has to be decided.”
Not mentioned were Samsung, Korea’s No. 2 appliance maker, which is steadily building its U.S. market share, or BSH, the diversified German manufacturer of the premium Bosch, Siemens and Thermador brands, which already maintains manufacturing facilities in South Carolina. Both are eyed as potential bidders by industry observers.
In announcing the divestiture, GE said it is considering three options: a partnership or joint venture, an outright sale, or a spin-off. In an interview with Reuters, Immelt said “We’re looking seriously at the spin option … [which] may give us a way to do it in a very economical way.”
Immelt said the company has already had “a lot of inquiries” from potential buyers, mostly offshore, and believes that GE could close a deal by 2009 or sooner. “We think this is an asset that is easily sellable, even in a difficult market,” he said, adding that the deal will “fill lots of newspaper articles … for the next six to nine months.”
In the interim, Jim Campbell, president/CEO of GE’s consumer and industrial division which includes white goods, will remain with the majap unit along with its senior management team, while GE retains the division’s lighting and electrical distribution businesses.
U.S. retailers were not surprised by GE’s long-rumored decision, citing the competitive disadvantage of its higher-cost manufacturing.