GE kills $3.3 billon deal amidst US government lawsuit.
It would have been the largest transaction in Electrolux’s history: $3.3 billion to acquire General Electric’s appliance business.
That is, until GE announced that it was terminating the agreement. The announcement came in the midst of an anti-trust lawsuit levelled against the two companies by the United States Department of Justice (DOJ).
The Fate of General Electric’s Appliance Division
GE has been trying to sell its appliance business since 2008, when it was negotiating with Samsung and LG, as well as Electrolux. Those talks were frustrated by the onset of the financial crisis, but they resumed in 2013. Negotiations culminated in the announcement of the proposed Electrolux acquisition on September 8, 2014.
The deal would have combined Electrolux’s Frigidaire line with GE’s stable of appliances. It also included a long-term agreement to continue the use of GE appliance brand names. The acquisition would have nearly doubled Electrolux’s business in North America, putting them on par with the Whirlpool Corporation, their largest competitor.
In addition, the deal was expected to save Electrolux approximately $300M annually by giving the company greater purchasing power in negotiations with its suppliers.
In July 2015 however, the DOJ sued Electrolux and GE to stop the proposed acquisition.
The DOJ argued that combining two of the top three appliance manufacturers in the US market would diminish competition and spark higher prices for cooking appliances—an increase of at least five percent by their estimation.
According to the transaction agreement between the two companies, Electrolux is required to pay GE a termination fee of $175M under certain circumstances. GE formally requested pay-out of that amount as part of its termination announcement.
Electrolux’s Response
GE stated in a press release that it “will now pursue other options to sell the Appliances business” but declined to elaborate any further.
The response from Electrolux was noticeably less terse.
“Although we are disappointed that the acquisition will not be completed, Electrolux is confident that the Group has strong capabilities to continue to grow and develop its position as a global appliances manufacturer,” said Keith McLoughlin, president and CEO of Electrolux.
Despite McLoughlin’s stiff upper lip, Electrolux shares fell by as much as 15 percent in response to the announcement. In addition to the $175M break up fee, Electrolux has incurred roughly $47M in ancillary costs since the deal was announced.
In response to the DOJ lawsuit, the companies argued that home-building companies and large retailers wouldn’t permit Electrolux to raise appliance prices after the merger. They also claimed that the proposed merger was similar to Whirlpool’s 2006 acquisition of Maytag. The DOJ allowed that deal in spite of objections by anti-trust enforcers.
GE and Electrolux: What happened?
One of the most obvious differences between the Whirpool/Maytag deal and the one between Electrolux and GE is the legal and political climate. The former deal went through in 2006 under George W. Bush and Republican anti-trust enforcers.
Those same jobs are now held by Democrats in the world of post-2008 regulation. As such, it would not be surprising for this lawsuit to have had a greater chilling effect on the negotiations.
It is also worth noting that both GE and Electrolux claimed that the DOJ’s lawsuit ignored the growing influence of overseas companies like Samsung and LG. Now that GE’s Appliances division is back on the market, one can’t help but wonder whether those same companies will show renewed interest.
According to GE, “the Appliances business is performing well”. That suggests the break up has more to do with avoiding the opprobrium of an unfavorable DOJ ruling than any economic or logistical shortcoming.
For more information, visit GE or Electrolux’s website.