Electrolux to buy GE’s appliances business in its biggest ever deal

GE’s century-old household appliance business, which had $5.7bn in 2013 revenue, could help Electrolux expand beyond its core European market where growth has trailed that in North America.

Reuters

Stockholm

Sweden’s Electrolux said yesterday it would double US sales by paying $3.3bn in cash for General Electric’s appliances business in its biggest ever deal, giving it the scale to go head-to-head with larger rival Whirlpool.

GE’s century-old household appliance business, which had $5.7bn in 2013 revenue, could help the Swedish company expand beyond its core European market where growth has trailed that in North America.

Electrolux, the world’s second-largest appliance maker by sales, will see its annual sales in North America more than double to over $10bn, similar in size to Whirlpool’s sales there. It also gets to keep the iconic GE Appliance’s brands.

“I think it’s a historic event for Electrolux. I’m very excited about it. I think the fit — the strategic fit, the industrial logic — is compelling,” Electrolux chief executive Keith McLoughlin told Reuters.

While the price tag is higher than the $2.5bn figure people familiar with the deal suggested to Reuters last week, analysts said the company was not overpaying. The deal includes GE’s 48.4% stake in Mexican appliances maker Mabe.

Electrolux said the price was 7.0-7.3 times GE Appliance’s estimated 2014 earnings before tax, interest, depreciation and amortization (EBITDA), based on an enterprise value (including debt) of $3.45bn, according to ThomsonReuters data.

Including expected annual cost savings of around $300mn, the multiple paid for GE would be much lower at around five times EBITDA, Electrolux chief financial officer Tomas Eliasson told a conference call.

“If they manage to realise the synergies, it’s clearly a good multiple,” said Kepler Cheuvreux analyst Johan Eliason, adding the inclusion of the Mabe stake would strengthen Electrolux’s position in Latin America on top of the clout it is gaining in North America.

“They’re getting access to both North and South America in a very good way, and will become very strong in all of the Americas,” Eliason said.

The deal will be financed by a bridge facility and the company plans a rights issue to raise about 25% of the price after the deal’s expected closing next year, Electrolux said.

Investor, the investment company founded by Sweden’s Wallenberg family and owner of 15.5% of Electrolux’s capital, gave the deal and the right issue its stamp of approval.

“As the leading owner, with a long-term ownership horizon, we find Electrolux’s acquisition of GE Appliances industrially attractive and fully support it,” Investor Chief Executive Börje Ekholm said.

Electrolux shares were up 5.9% at 198.60 crowns at 1048 GMT, outperforming the wider Stockholm market, giving the company a market capitalisation of $8.7bn.

General Electric Co put the profitable but low-margin appliance business up for sale in 2008 but talks fizzled out as the global recession took hold. The unit is almost exclusively focused on the US market and has lacked global scale.

GE said last month that it was evaluating strategic options for the home appliance business, including discussions with Electrolux.

Last year, GE Appliances — which sells refrigerators, cookers, air conditioners and water heaters and air conditioners under the GE Monogram, GE Cafe and Hotpoint brands — had sales of $5.7bn, 90% of which were in North America, with EBITDA of $390mn, including the share of profit from Mabe.

Electrolux, which sells under brands such as Frigidaire, AEG and Zanussi as well as its own name, is the world’s second-largest home appliance maker after Whirlpool, but has its strongest market position in Europe.

In 2013, western Europe accounted for 28% of group sales while North America represented 32%. Organic growth in North America was 7% while in Europe it was 0.4%.

Rival Whirlpool had revenues of $18.8bn in 2013 against $22.5bn for a combined Electrolux and GE Appliances.

Whirlpool has also been on the acquisition path, buying a 60% stake in Italian firm Indesit, which had revenues of 2.7bn euros ($3.49bn) in 2013. It has also agreed to buy Hefei Rongshida Sanyo Electric Co which had 2013 revenues of around $850mn.

Deutsche Bank and SEB Corporate Finance were Electrolux’s financial advisers on the deal, while Davis Polk & Wardwell was lead legal advisor. GE was advised by Goldman Sachs and law firm Sidley Austin LLP.