GE Completes Divestiture Of Appliance Business To Haier

Industrial goods manufacturer General Electric Company (NYSE:GE) has recently completed the divesture of its appliance unit to the Chinese multinational consumer electronics manufacturer, Haier Group. The strategic move is in tune with the corporate strategy of General Electric to focus on its core industrial businesses.

GE Appliance: The Divested Entity

The GE Appliance segment sells and services major home appliances including refrigerators, freezers, electric and gas ranges, cook tops, dishwashers, clothes washers and dryers, microwave ovens, room air conditioners, and residential water systems under the GE Monogram, GE Cafe and Hotpoint brands. The segment also includes a much smaller lighting business that is not being considered for sale.

The business is exclusively focused on the U.S. markets and thereby lacks the global scale to compete with other leading electronics manufacturers like Samsung Electronics (KS:005930) Co. Ltd. and LG Electronics Inc., leading to flatter revenues and shrinking margins. Consequently, the divestiture is likely to unlock additional value by allocating more resources to higher-growth businesses.

Electrolux’s Loss, Haier’s Gain

In December last year, General Electric scraped the deal to sell the GE Appliance business to the Swedish electronics manufacturer, Electrolux AB (OTC:ELUXY) . Although the company had then cited no official reason for the termination of the $3.3 billion transaction in limbo, it was apparent that the acrimonious lawsuit filed by the U.S. Department of Justice and its continuous scrutiny likely led to the cancellation of the deal.

The lawsuit was intended to prevent an alleged duopoly in the U.S. appliance market for stoves and ovens, as General Electric, Electrolux and market leader Whirlpool Corp. (NYSE:WHR) commanded about 90% of the market share. Consequently, the arbitrators felt that the transaction would result in higher prices for essential electronic goods that are an integral part of everyday life.

After the Electrolux deal failed, General Electric began to scout for other alternatives to sell its appliance unit. With profound experience and credible market presence, Haier outbid other suitors and closed the deal at $5.6 billion.

Moving Forward

General Electric expects the transaction to generate an after-tax gain of 20 cents per share, which is likely to be nullified by the restructuring expenses incurred during the year. Despite soft macroeconomic conditions and expectations of weak global growth in 2016, General Electric anticipates operating earnings to be within $1.45–$1.55 a share.

Organic revenue growth in 2016 is expected to be 2-4%. In addition, General Electric intends to return $26 billion to the shareholders in 2016, including $8 billion in dividends and $18 billion in share repurchases. We remain impressed with the continued efforts of this Zacks Rank #3 (Hold) stock to sustain its growth momentum in the near future. A better-ranked stock in the industry includes Koninklijke KPN N.V. KKPNF, which carries a Zacks Rank #2 (Buy).

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AB ELECTROLUX (ELUXY): Free Stock Analysis Report

GENL ELECTRIC (GE): Free Stock Analysis Report

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