By William Patalon III
Money Morning/The Money Map Report
Since we started Money Morning last year, there's been one key theme: The next generation of leading global companies will come from outside U.S. borders.
If you need proof, just look at the Top Five suitors for General Electric Co.'s (GE) century-old home-appliances division. There isn't a U.S. company on the list.
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GE Chief Executive Officer Jeffrey R. Immelt – who last week told analysts the company was "seriously considering a spin-off" for the unit – said yesterday (Wednesday) that there were five possible buyers, including:
- LG Electronics Inc., a South Korean electronics and telecommunications giant that's positioning itself as a global heavyweight.
- Haier Group Co., a China-based appliance-maker that's one of that country's real corporate success stories.
- Controladora Mabe S.A. de C.V., a successful Mexico-based appliance firm that is partly owned by GE, and that already makes appliances for other brand-name firms – including GE.
- Electrolux AB (OTC ADR: ELUXY), a Stockholm-based company that parlayed its success in high-end vacuum cleaners into a broader success in home appliances.
- Arcelik Anonim Sirketi, an Istanbul, Turkey-based appliance-maker that does business throughout the world – including in the United States.
It's only been a week since reports surfaced that GE was looking to sell or spin-off its home-appliance business unit, the latest in an ongoing series of divestitures aimed at unshackling the Corporate America heavyweight from the ebb-and-flow of consumer-focused markets. In that time, however, the unconfirmed rumors have solidified to the point that Immelt yesterday identified specific possible suitors.
"The players become very obvious," Immelt said during a breakfast meeting with businessmen in Seoul yesterday. "It's Haier in China, LG in Korea, and so on. Of course, LG is one of the leading candidates."
Immelt said the sale of the unit will be "a long process."
GE's appliances division is the No. 1 provider of refrigerators, ovens and dishwashers for newly-constructed houses in the U.S. market. The unit may draw bids of $3 billion to $8 billion, according to analysts at Citigroup Inc. (C) and Goldman Sachs Group Inc. (GS).
For Haier, the acquisition of the GE unit would give the China-based company a household brand name it could use to accelerate its U.S. expansion. Once named Qingdao Refrigerator Plant, the company is now "China's ambassador to appliance stores worldwide," according to Hoover's, the well-known business-information provider.
From the brink of bankruptcy, Haier rebounded and remade itself into China's largest appliance company and a world-renowned brand that sells refrigerators, freezers, mobile phones, computers, air conditioners and more in more than 160 countries worldwide. Since "pulling itself up by its bootstraps," Haier has used joint ventures and other shrewd maneuvers to branch out both geographically and commercially, Hoover's reports.
For the Seoul-based LG Electronics, the purchase of GE's appliance business would allow the Korean firm to challenge U.S. heavyweight Whirlpool Corp.'s (WHR) global lead in the production of appliances, Bloomberg News reported.
According to published reports by Bloomberg and others, LG hasn't decided whether to bid for the GE unit, the company said yesterday in response to a query by Korea's stock exchange.
LG is "carefully monitoring" the sale of GE's appliances division, Chief Executive Officer Nam Yong said. Zhao Rui, a spokeswoman at Haier, declined to comment, Bloomberg said.
James Kim, an analyst at Lehman Brothers Holdings Inc. (LEH), wrote in an investment note that speculation that LG will bid for GE "has been overdone, without any concrete developments … according to our channel checks, GE and LG Electronics have not talked about this potential acquisition."
However, Castor Pang, an analyst at Sun Hung Kai Securities in Hong Kong, told Bloomberg that "both LG and Haier need [the] GE [business unit in order] to break into the U.S. market because [GE] has a very strong brand. Buying GE would be a big advertisement for them. After all, the U.S. market is still a very big market."
GE's appliances business had a U.S. market share of 27% in 2006, the most recent figures available, JPMorgan Chase & Co. (JPM) analysts estimate. The unit had revenue of $7.2 billion in 2007, according to Credit Suisse Group (ADR: CS) estimates.
News and Related Story Links:
LG, Haier May Bid for GE Appliances Unit, Immelt Says.
LG Electronics Aims to Be Truly Multinational, Marketing-Driven Company.
Money Morning News:
With its Profits Lagging, GE May Have a Deal in the Oven, Analysts Say.
GE Appliance Sale May Foreshadow More Divestitures.
The Financial Times:
GE could sell appliances unit.
The Financial Times:
GE steps up plans to trim amid slowdown.
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.