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The Impact of the General Electric Appliances–Haier Deal

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More about the General Electric Appliances–Haier deal

Apart from mega deals to sell financial assets, General Electric (GE) has shifted away from the appliance business as this segment didn’t fit right in its core business portfolio. Its major products include lighting products and services, such as industrial-scale lighting solutions and major home appliances, including refrigerators, cook-tops, dishwashers, and hybrid water heaters. The Appliances & Lighting business generated 5.8% of GE’s revenues in 2Q16 but accounted for only 2.3% of profit.

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On January 15, 2016, GE agreed to sell its appliances business to Haier for $5.4 billion. The deal was subject to regulatory and other approvals. The transaction values GE Appliances at ten times the last 12 months of EBITDA (earnings before interest, tax, depreciation, and amortization). The transaction closed in 2Q16 and will bring a gain of $0.20 per share. Earlier, Electrolux (ELUXY) had shown interest in buying GE’s appliance unit (valued at $3.3 billion), but the plan fell apart due to antitrust 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 Euromonitor, in 2014, the Haier brand had the world’s largest market share in appliances, with a retail volume market share of 10.2%. This was the sixth consecutive year in which Haier was the market share leader for major appliances.

If you are interested in trading in industrials, you can look into the Fidelity MSCI Industrials Index ETF (FIDU) and the iShares Morningstar Large-Cap Value ETF (JKF).

FIDU’s top holdings are GE at 12.9%, 3M (MMM) at 4.6%, Honeywell International (HON) at 3.7%, and United Technologies (UTX) at 3.5%.

On year-over-year basis as of July 22, 2016, GE rose 20.4% against the 2.8% drop for the broad-based S&P 500 Index (SPY). On a year-to-date basis, GE rose 4.9%.

We’ll look at Alstom and its performance after the General Electric acquisition in the next part of this series.

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