General Electric Company (NYSE: GE) may have just found a very unlikely outcome in its GE Appliances unit sale. GE has been wanting out of the appliances unit for years. Now word is out in media reports, and was later confirmed on CNBC, that the Department of Justice has filed a civil suit looking to block GE’s unit sale to Electrolux. 24/7 Wall St. is more concerned with what this means for GE as a whole and other pending asset sales from other companies versus what the cost of this deal blockage might be.
For starters — this could spell disaster to the M&A landscape. GE was recently re-added to the 10 Stocks to Own for the Next Decade, and honestly part of the company’s transformation was one of the reasons. GE has already made a response, which was sent to 24/7 Wall St. by a GE spokesperson:
GE was notified today that the Department of Justice has initiated court proceedings seeking to enjoin the sale of GE Appliances to Electrolux. Electrolux and GE intend to vigorously defend the proposed acquisition as pro-competitive and pro-consumer. Our goal remains to close the deal this year. GE continues to believe that GE Appliances’ customers, consumers and employees will benefit from Electrolux’s commitment to the appliance business and its ability to compete with global competitors.
Again, GE has wanted to dump this appliances unit for some time. The time before Electrolux AB was involved was interrupted by the recession and the housing crisis making the GE Appliances unit un-sellable. After all, who wanted dish washer, refrigerators, stovetops and ovens, and washer-dryer systems at that time.
If the reports that DOJ staff attorneys at the antitrust division have actually recommended against the $3.3 billion deal that was set in place, then the fallout is likely going to extend farther than just this situation. Keep in mind that the Electrolux deal was struck last fall.
Whirlpool Corp. (NYSE: WHR) is over 100 years old, with brands like Whirlpool, Maytag, Jenn-Air, KitchenAid and many more. The company is over 100 years old and had 2014 revenue just shy of $20 billion. Its shares were down nearly 2% at $170.00 in late Wednesday trading. Its 52-week range is $135.37 to $217.11.
GE has wanted out of its Appliances unit for quite some time and was waiting for the right time. Maybe GE feels like this unit is like the mafia – no matter how much you want out, they suck you back in. When we first saw that GE may be interested in selling, the appliances unit had close to $380 million of operating profit, or only about 2% of the company’s entire profits.
The 2013 GE annual report showed that there was a combined revenue in Appliances & Lighting of $8.338 billion in 2013 and $7.967 billion in 2012, with the unit having $381 million and $311 million in segment profits for each year. The company’s total industrial segment revenue and income (including appliances) were $103.6 billion and $16.2 billion, respectively, in 2013.
Unfortunately, this is not great for GE. The conglomerate wants to be an industrial conglomerate. It wants out of the largest part of its financial exposure business, and it has wanted out of the Appliances unit for years now. Imagine such a small asset sale in the grand scheme of things like this getting blocked by regulators. Still, the grand scheme of things, at least according to the DOJ, would still have allowed close to a duopoly.
If this turns out to be true, and if it is not able to be worked around, think about what this will do for M&A bankers and company officers who are interested in acquisitions. At a minimum it could drive up the break-up fees. At an extreme, it could kill many merger ambitions.
The DOJ is also reportedly investigating the US airline sector over collusion of slowing growth to keep ticket prices high. If that is true then the DOJ needs to get involved in that deal. But in a deal like the GE appliances sale? That may be another matter entirely. Stay tuned.
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