Electrolux is buying General Electric’s appliance business for $3.3 billion as the Swedish company looks to bulk up in the US.
The Swedish group's largest ever acquisition is designed to narrow the gap to market leader Whirlpool and will make the US Electrolux's biggest market. The price is higher than analysts had expected.
Reports last week had suggested a price of $2 -$2.5 billion but Electrolux said it was paying a reasonable multiple to buy a business that made $5.7 billion in sales last year and $390 million in earnings before interest, tax, depreciation and amortisation.
Electrolux said it expected annual cost savings about $300 million after one-off charges and spending of about $350-$370 million. It said the price was equivalent to about 7-7.3 times this year’s EBITDA.
"This is a historic moment and important strategic move for the Electrolux Group, which takes our company to a new level in terms of global reach and market coverage. GE's premium, high-quality appliances complement our own iconic brands and will enhance our presence in North America" said Keith McLoughlin, Electrolux's chief executive.
The sale marks the second attempt by GE to sell its 100-year-old appliances unit after abandoning its first try in 2008 as the financial crisis broke.
Jeff Immelt, GE’s chief executive, is refocusing the company around its industrial business, which makes everything from aeroplane engines to medical equipment.
Electrolux, which will still be able to use the GE Appliances brand names, is planning a rights issue to raise about a quarter of the price after the transaction closes. The Swedish company said only that the closing of the deal was expected some time next year.
Investor, the Wallenberg family investment vehicle that is Electrolux’s biggest shareholder owning 15.5 per cent of the capital and 30 per cent of the votes, said it fully supported the deal and would back the rights issue.
“As the leading owner, with a long-term ownership horizon, we find Electrolux’s acquisition of GE Appliances industrially attractive and fully support it,” said Börje Ekholm, Investor’s chief executive.
GE Appliances, which is headquartered in Kentucky, made 90 per cent of its sales in North America last year and Electrolux is also acquiring its 48 per cent stake in Mabe, a Mexican appliances company. Its products include cookers, fridges, washing machines, dishwashers and air conditioners.
The Swedish company has agreed to pay a break fee of $175 million if it fails to gain regulatory approval. By the measures of some industry analysts, Electrolux and GE are the second- and third-largest appliance makers in the US.
Electrolux was advised by Deutsche Bank and SEB, who are also providing bridge funding which will be replaced by bonds and bank loans as well as the rights issue.
- Copyright The Financial Times Limited 2014
