Wednesday, August 13, 2014

General Electric Set to Sell its Home Appliance Business, but at What Price?

According to press reports, General Electric Company is considering selling off its home appliances and lighting division, with figures of $1.5 billion to $2.5 billion being tossed around. While the deal makes perfect strategic sense for General Electric, the price looks too low when compared with home-appliance peers such as Whirlpool Corp . Moreover, the division has significant growth opportunities from the replacement cycle in the home appliance industry, and in LED lighting -- just look at Cree, Inc.  and its LED lighting prospects. So, what sort of price would make sense?

General Electric continues restructuring

From the company's perspective, selling the division would further CEO Jeffrey Immelt's aim of refocusing the company back onto its industrial side. Most people don't consider it a core holding, even though the home appliances and lighting division represents the most visible part of the business to the American consumer.

As for other elements of the company's plans, investors can read here about how it's been investing in its oil and gas division and here about its aviation division. Meanwhile, the IPO of Synchrony Financial, its consumer lending unit, is further evidence of its shift in emphasis toward the industrial sector. Meanwhile, the bid for Alstom's energy business is seen as a sign of acquisition activity in the sector and an attempt to generate cost synergies by consolidating power-generation operations.

In the context of all this activity, the sale of the home-appliances business makes perfect sense. Despite being an iconic business, the division ranks third in the U.S. behind Whirlpool and Electrolux. Moreover, it's the smallest contributor to segmental profitability, and selling it would free up management's time and resources to focus on its industrial operations.


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