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Electrolux is going to head to head in the US with its bigger rival Whirlpool in the battle to sell the most washing machines and fridges after agreeing to...
buy General Electric’s appliance business for $3.3bn.
The Swedish group’s largest ever acquisition will reduce its dependence on Europe and boost US sales to nearly half of the $22.5bn the combined company should have.
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The deal combines the number two and three domestic appliance makers in the US and afterwards Electrolux and Whirlpool would each control about 40 per cent of the market, analysts said.
Keith McLoughlin, the American-born chief executive of Electrolux, told the Financial Times the opportunity to get the century-old GE business and its brands that include Hotpoint was too good to be missed.
“The US market is quite large: it is growing because the population is growing, and it’s stable with a recovery going on in both the overall economy and in the housing market where GE is present,” he added.
Investors reacted warmly to the sale, sending Electrolux shares up by 5 per cent to SKr196.
GE has tried to sell the appliance business – which last year had $5.7bn in sales and $390m in earnings before interest, tax, depreciation and amortisation – in 2008 but abandoned the attempt as the financial crisis intensified. It said the sale should lead to a post-tax gain of $0.05-$0.07 per share.
Jeff Immelt, GE’s chief executive, is trying to refocus the company on its industrial business, picking up Alstom’s energy unit for $17bn. He said: “We are creating a new type of industrial company, one with a balanced, competitively positioned portfolio of infrastructure businesses with strong advantages in technology, growth markets, driving customer outcomes and a culture of simplification.”
Electrolux said it expected annual cost savings of about $300m four years after closing the deal in “mid-2015” and after one-off charges and investments of about $360m. Most of the savings would come from purchasing and sourcing but some restructuring was likely, Mr McLoughlin said. He added that Electrolux saw the chance to introduce GE appliances in other countries as it currently generates about 90 per cent of its sales from North America.
The Swedish group has in the past decade shifted its production radically away from high-cost countries such as its homeland and Germany to lower-cost emerging markets. Mr McLoughlin is now seeking to polish the brand’s image as well as expanding into emerging markets such as Brazil and China.
The GE business includes a 48 per cent shareholding in Mabe, the Mexican appliances maker from which the US company sources about a quarter of its products.
Mr McLoughlin said the $3.3bn purchase price was equivalent to about 7-7.3 times this year’s expected ebitda and was in line with other multiples in the sector.
The Swedish group, which will be able to use the GE Appliance brand names globally, is planning a rights issue to raise about a quarter of the purchase price after the transaction closes. The rest of the purchase price will be funded by a mixture of bonds and bank loans.
Investor, the Wallenberg family investment vehicle that is Electrolux’s biggest shareholder owning 15.5 per cent of the capital and 30 per cent of the votes, said it would back the rights issue.
“As the leading owner, with a long-term ownership horizon, we find Electrolux’s acquisition of GE Appliances industrially attractive,” said Börje Ekholm, Investor’s chief executive.
Mr McLoughlin said he expected regulatory approval to take some time. “We have had our experts look at this thing six ways to Sunday. On its merits, this transaction should get approval,” he added. The Swedish company has agreed to pay a break fee of $175m if it fails to gain regulatory approval.
GE Appliances, which is headquartered in Kentucky, has 12,000 workers and its biggest product lines are cookers, fridges and washing machines. It also makes dishwashers, air conditioners, water filters and water heaters.
Electrolux was advised by Deutsche Bank and SEB, who are also providing bridge funding until the deal closes. Goldman Sachs advised GE.
Source:http://www.ft.com/cms/s/0/c3819660-371f-11e4-8472-00144feabdc0.html#axzz3Cjn85geQ
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