R: GE confirms plans to exit appliance business
Fri May 16, 2008 1:07pm EDT
By Scott Malone
BOSTON (Reuters) - General Electric Co (GE.N: Quote, Profile, Research) confirmed on Friday it may sell or spin off its century-old appliances unit, saying the business was too focused on the United States.
The appliance arm, which employs about 13,000 people worldwide, is the area of GE hardest hit by the two-year U.S. housing slump, as the company sold a lot of its dishwashers and refrigerators to home builders.
The Louisville-based business, which last year generated $7.2 billion in revenue, could appeal to an Asian manufacturer looking for a well-known American brand, analysts and investors said. They estimated the appliances business could sell for $4 billion to $8 billion and cited South Korea's LG Electronics (066570.KS: Quote, Profile, Research) and China's Haier as among possible suitors.
"With the weak dollar, this could look more attractive to an overseas company trying to get a big foothold in the U.S. market," said Matt Collins, capital goods analyst at Edward Jones in St. Louis.
LG officials declined to comment, while those at Haier did not respond to calls.
Over the past five years, the Fairfield, Connecticut-based conglomerate has sold off businesses that generated about $52 billion in revenue, including its plastics unit, as it seeks to move away from slower-growing and more volatile market segments in favor of long-cycle businesses with global exposure, like jet engines and commercial finance.
"This review is consistent with the strategy we have been executing to transform our portfolio for long-term growth," said Jeff Immelt, chief executive of the second-largest U.S. company by market capitalization, in a statement. He added that the $7.2 billion appliance unit, which is based in Louisville, "remains primarily a U.S. business, meaning its fortunes are tied to the rise and fall of a single market."
GE is also scaling back its personal finance business, GE Money, looking to sell its Lake Japanese consumer lending unit and U.S. private-label credit card business. Troubles at its financial arms, which the company blamed on the credit crunch, played a major role in GE's unexpected drop in first-quarter profit, though it also cited the GE Industrial arm, which includes appliances, as a weak spot.
GE shares were down 21 cents to $32.16 on the New York Stock Exchange on Friday. They are down about 1 percent since GE's interest in selling for spinning off the unit was first reported late on Wednesday by the Wall Street Journal.
For the year, they are down 13 percent, having seen their sharpest one-day drop in two decades after reporting a surprise drop in first-quarter profit last month.
That's a far deeper drop than the 2.6 percent slide of the blue-chip Dow Jones industrial average .DJI, of which GE is a component.
PORTFOLIO SHUFFLE
Having already warned investors that profit may be flat this year due to the credit crunch and slowing U.S. economy, GE is reshuffling its portfolio of businesses -- which also include NBC Universal media -- to get back on track for its long-term target of 10 percent profit growth next year, investors said.
"This is a slow economy right now, there's no question. So you reposition, you restrategize and you try to support the company in the slower times and really position it to take advantage of the uptick," said George Padula, president of Danforth Associates, a Wellesley, Massachusetts-based company that manages $100 million in assets and holds GE shares.
While GE's appliances unit is a relatively small slice of the conglomerate -- last year it accounted for 4 percent of GE's $173 billion in total revenue -- it is the No. 2 player in the U.S. appliance industry, trailing Whirlpool Corp (WHR.N: Quote, Profile, Research).
It has been hard hit by lower-priced competition from Asian rivals including LG and Haier.
Italian home appliances maker Indesit (IND.MI: Quote, Profile, Research) and Western Europe's largest maker of household appliances Bosch und Siemens Hausgerete, a joint venture of Robert Bosch Gmbh ROBG.UL and Siemens AG (SIEGn.DE: Quote, Profile, Research) also declined comment.
(Additional reporting by Nick Zieminski in New York, Claudia De Lillo in Milan, Kirby Chien in Beijing, Michael Flaherty in Hong Kong, Jens Hack in Munich; editing by Dave Zimmerman, Phil Berlowitz)
AI
