The Haier deal
General Electric Company (GE) wants to shift away from the appliances business, as this segment doesn’t fit into its core business portfolio. GE Appliances includes lighting products and services and major home appliances such as refrigerators, cooktops, dishwashers, and hybrid water heaters. In 2015, the appliances and lighting business generated 8.0% of GE’s industrial revenues but accounted for only 3.8% of operating profit with an operating margin of 7.7%.
On January 15, 2016, GE agreed to sell its appliances business to Haier for $5.4 billion. The deal is subject to regulatory and other approvals. The transaction values GE Appliances at ten times the past 12 months of earnings before interest, taxes, depreciation, and amortization.
The transaction, targeted to close in mid-2016, will bring a $0.20 per-share gain. Earlier, Electrolux (ELUXY) showed an interest in buying GE Appliance valued at $3.3 billion, but the plan fell apart due to antitrust scrutiny.
GE is part of the Industrial Select Sector SPDR ETF (XLI) and accounts for 11.78% of XLI’s total holdings. GE is also one of the top ten holdings of the Vanguard High Dividend Yield ETF (VYM), accounting for 3.6% of VYM’s total holdings. Microsoft (MSFT) and Exxon Mobil (XOM) are among the top holdings in the fund.
About Haier Group
Haier Group is a Chinese multinational consumer electronics and home appliances company. It designs, develops, manufactures, and sells air conditioners, mobile phones, computers, microwave ovens, washing machines, refrigerators, and televisions.
According to data released by Euromonitor, the Haier brand had the world’s largest market share in white goods in 2014, with 10.2% retail volume market share. This was Haier’s sixth consecutive year as market share leader for major appliances.