General Electric-Haier deal
Apart from mega deals for selling financial assets, General Electric (GE) was also trying to shift away from the appliances business, as this segment didn’t fit well in its core business portfolio.
The company’s major products include lighting products and services such as industrial-scale lighting solutions and major home appliances like refrigerators, cooktops, dishwashers, and hybrid water heaters. The appliances and lighting business generated 6.9% of GE’s revenues in 1Q16 but accounted for only 4.6% of profit.
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 last 12 months of earnings before interest, taxes, depreciation, and amortization. The transaction is scheduled to close in 2Q16 and will bring a gain of $0.20 per share. Earlier, Electrolux (ELUXY) had shown interest in buying GE’s appliance unit, which is valued at $3.3 billion, but the plan fell apart due to anti-trust scrutiny.
About Haier Group
Haier Group is a Chinese multinational consumer electronics and home appliances company. It designs, develops, manufactures, and sells products including air conditioners, mobile phones, computers, microwave ovens, washing machines, refrigerators, and televisions.
According to data released by Euro Monitor, in 2014 the Haier brand had the world’s largest market share in white goods with a 10.2% retail volume market share. This was the sixth consecutive year in which Haier had been the market share leader for major appliances.
Investors interested in trading in industrials can look into the Fidelity MSCI Industrials ETF (FIDU) and the iShares Morning Star Large-Cap Value ETF (JKF). The top holdings of the FIDU ETF are GE with a 13.4% weight, 3M (MMM) with a 4.6% weight, United Technologies (UTX) with a 3.8% weight, and Honeywell International (HON) with a 3.7% weight.
On a yearly basis until April 22, GE was up 14.3% against a 0.8% drop for the broad-based S&P 500 Index (SPY).
We’ll look at Alstom and its performance after the General Electric acquisition in the next part.