GE looking to sell appliance division

GE looking to sell appliance division

Thursday, May 15, 2008

General Electric is planning to sell its appliance division, one of the oldest businesses in the conglomerate’s 120-year history, people briefed on the proposal said Wednesday.

A sale of the unit, which makes refrigerators, microwaves and washer-dryers, among other items, could fetch at least $5 billion, these people said. GE and its investment bank, Goldman Sachs, have been laying the groundwork for an auction over the last few weeks.

The appliance unit, which helped make GE an American icon, may end up in foreign hands. Wall Street bankers are rushing to lay claim to potential bidders, and the expected suitors include Haier of China, which bid on Maytag two years ago; LG Electronics and Samsung, both of South Korea; Bosch of Germany; Electrolux of Sweden, which makes Sears’s Kenmore line of appliances; and Controladora Mabe, a GE partner based in Mexico.

The sale would mark the end of a brand of household products that made General Electric a fixture in American homes over the last century.

Jeffrey Immelt, its embattled chief executive, has been trying to refashion General Electric in the face of widespread calls to break up one of America’s largest companies. That mission has taken on greater urgency with the credit squeeze and the slumping economy, which have affected many of GE’s businesses.

The division, based in Louisville, Kentucky, has faced increased pressure in recent years from Chinese manufacturers, which have been growing at double-digit rates thanks in part to significantly lower costs.

Asian manufacturers are expected to be particularly drawn to the division, seeking to take advantage of GE’s widely known brand name as they try to become global businesses. Lenovo, the Chinese electronics company, successfully acquired IBM’s personal computer division in 2004, in part to help establish itself on the world stage.

As part of a potential sale, GE is likely to hand over a license to use the GE brand for a short period of time, the people briefed on the proposal said. After the initial license for using the General Electric brand expires, the buyer of the appliance unit would be allowed to continue to use the Monogram and Profile badges.

The arrangement is similar to the way Lenovo held onto the IBM badge for several years before using its own.

The news was first reported on Wednesday by The Wall Street Journal on its Web site.

GE’s once high-flying stock price has fallen 20.5 percent during Immelt’s seven-year tenure, and many analysts and investors have called for transformational changes at the corporate behemoth. Last year, it sold its plastics business to Sabic, the big Saudi Arabian industrial company, for $11.6 billion.

Immelt’s critics long have urged him to consider more unit sales, including the appliance unit, NBC Universal and GE Money, the company’s consumer finance unit. The company has focused on higher-growth technology businesses of late, moving out of consumer-oriented operations. GE’s light bulbs, however, continue to be made by the company’s lighting division.

That critical chorus grew louder and more insistent last month when GE’s first-quarter earnings badly missed analysts’ estimates and its own projections.

GE’s stunning announcement, made more notable by its status as a barometer of the economy, shook Wall Street’s confidence: the company’s shares fell 13 percent that day, its biggest one-day loss in two decades. Even worse, for a company that prided itself on meeting expectations, GE was forced to cut its projected earnings growth for this year to 5 percent from 10 percent.

The appliance business generated $7 billion in revenue last year, only a small fraction of GE’s $173 billion in total annual revenue, but divorcing it from the company would carry great historical import. Begun in 1907 as a maker of cooking and heating appliances, it has since grown to manufacture a broad range of products. Among its firsts are the room air-conditioner (1930), the combined washer-dryer unit (1954) and the toaster oven (1956).

As of last year, the appliances unit had about 13,000 of GE’s 327,000 employees.

***

My dear American friends, how do you really feel when reading this piece of news ? Some may find it surprising and some may find it depressing. Some journalist said that GE is selling its soul. This is just simply because the home appliances that American consumers are used to might just be handed to a foreign company and it is true that it is sad to see that there is no American companies among the bidders of this major auction handled by Goldman Sachs. Plus, GE is going to let go its most historical business line which will cut off a big connection to the general consuming public. It was also surprising to see that Japanese companies are not making a move in this bid. $5 billion to $8 billion, this is one big deal so only super growing companies who wants to be global and want to have a chance to control the American market are into it.

Anyway, I am not sure about the home appliances situation in the States. Are your homes filled up with GE appliances or mostly from foreign countries’ brands ? Although most of these are manufactured in China, I wonder how the American brand itself really means to the people of US. We, in Asia, as long things are cheap and of reliable quality, we would choose that. It’s just that simple here. So, naturally, Japanese, Korean and Chinese products fill our homes here in our side of the world. Americans reading this article, please let me know how you feel and I would be grateful to get some input on the current consumer home appliances situation there. According to this article, “Ask many Americans what they associate with General Electric and they’ll give you two words: light bulbs and ovens. Ask investors what they would like to see GE dropkick from its family and you’ll often hear the same words.”. Let me know how true this is. Thanks and peace.

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4 thoughts on “GE looking to sell appliance division

  1. adam smith’s invisible hand at work..

    Jack welch
    1st rule for GE- be the best or number 2 in ur business.. if not get the $^%* out of it!

    Size is not everything.. Biggest company in the world does not mean ur the best!
    remember apple v dell

    GE is just playing smart.. In this day and age where everything is outsourced, its doing the next best thing, selling a brand(intangible) and letting the chinese use their cheap labour/ low cost flood the market with consumer products (recession market)

    all u can say is, good luck chinese guys- they still havent reach the stage where they can create/invent their own brands yet. Once they start having their own GEs/ Sonys/ Toyotas.. its bye bye rest of world!

  2. Thanks, CSB.
    Didn’t know about the rule.
    I was hoping to hear some input on how you felt
    the American brand might be handed over to a foreign management.
    It is the game of the world nowadays for M&A
    but this obviously is a case that we’ve not really expected
    plus people are saying things like “GE’s selling its soul”.

  3. the soul of a company is its ppl..
    u can always create new intellectual property with the right ppl..

    wat is a brand but something in ppl’s mind…

    if i can create a brand that some chinese ppl is going to pay silly money for, then by all means sell!!

    go read jack welch’s management book.. he was the previous leader of GM

  4. It took me some time to figure out who “CSB” was.
    But I gotcha now. *hehe*
    Why would MAS telan your duit before you confirmed the flight ?
    Don’t get it. Never bought my tickets directly.

    Yeah, I got Welch’s book.
    Just finished up the first chapter. *hehe*
    Will read on till I get to the part where the rule’s written.

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