GE held ready to sell division

Appliance unit reportedly could bring $5 billion

May 15, 2008|By New York Times News Service

General Electric is planning to sell its appliance division, one of the oldest businesses in the conglomerate's 120-year history, people briefed on the proposal said yesterday.

A sale of the unit, which makes refrigerators, microwaves and washer-dryers among other items, could fetch at least $5 billion, these people said. GE and its investment bank, Goldman Sachs, have been laying the groundwork for an auction over the last few weeks.

The sale would also mark the end of a brand of household products that made General Electric a fixture in American homes over the last century.

Jeffrey R. Immelt, its embattled chief executive, has been trying to refashion General Electric in the face of widespread calls to break up one of America's largest companies. That mission has taken on greater urgency with the credit squeeze and the slumping economy, which have affected many of GE's businesses.

The appliance unit, which helped make GE an American icon, may end up in foreign hands. The division, based in Louisville, Ky., has faced increased pressure in recent years from Chinese manufacturers, which have been growing at double-digit rates thanks in part to significantly lower costs.

Asian manufacturers are expected to be particularly drawn to the division, seeking to take advantage of GE's widely known brand name as they try to become global businesses. Lenovo, the Chinese electronics company, successfully acquired IBM's personal computer division in 2004, in part to help establish itself on the world stage.

Wall Street bankers are rushing to lay claim to potential bidders for the division. Among the expected suitors are Haier of China, which bid on Maytag two years ago; LG Electronics and Samsung, both of South Korea; Bosch of Germany; Electrolux of Sweden, which makes Sears' Kenmore line of appliances; and Controladora Mabe, a GE partner based in Mexico.

As part of a potential sale, GE is likely to hand over a license to use the GE brand for a short period of time, the people briefed on the proposal said. After the initial license for using the General Electric brand expires, the buyer of the appliance unit would be allowed to continue to use the Monogran and Profile badges.

The arrangement is similar to the way Lenovo held onto the IBM badge for several years before using its own.

The news was first reported yesterday by The Wall Street Journal on its Web site.

GE's once-high-flying stock price has fallen 20.5 percent during Immelt's seven-year tenure, and many analysts and investors have called for transformational changes at the corporate behemoth. Last year, it sold its plastics business - where both Immelt and his predecessor, Jack Welch, worked early in their careers - to Sabic, the big Saudi Arabian industrial company, for $11.6 billion.

Immelt's critics long have urged him to consider more unit sales, including the appliance unit, NBC Universal and GE Money, the company's consumer finance unit. The company has focused on higher-growth technology businesses of late, moving out of consumer-oriented operations. GE's light bulbs, however, continue to be made by the company's lighting division.

The critical chorus grew louder and more insistent last month when GE's first-quarter earnings badly missed analysts' estimates and its own projections.

GE's stunning announcement, made more notable by its status as a barometer of the economy, shook Wall Street's confidence: The company's shares fell 13 percent that day, its biggest one-day loss in two decades. Even worse, for a company that prided itself on meeting expectations, GE was forced to cut its projected earnings growth for this year to 5 percent from 10 percent.

The economic picture that Immelt has painted recently shows his growing pessimism for consumer businesses like appliances. "We are in the toughest economy since 2001 and the worst housing crisis since the Depression," he told shareholders last month.

The appliance business generated $7 billion in revenue last year, only a small fraction of GE's $173 billion in total annual revenue, but divorcing it from the company would carry great historical import. Begun in 1907 as a maker of cooking and heating appliances, it has since grown to manufacture a broad range of products. Among its firsts are the room air-conditioner (1930), the combined washer-dryer unit (1954) and the toaster oven (1956).

As of last year, the appliances unit had about 13,000 of GE's 327,000 employees.

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