Update: General Electric Wants To Sell Its White (Elephant) Goods Business

Jul.17.14 | About: General Electric (GE)


General Electric in talks to sell non-core household appliance business.

Divestiture not previously anticipated but consistent as focus remains on oligopoly-type businesses with recurring revenue and secular growth.

News of potential sale reinforces view that General Electric is a choice for income-oriented investors.

On Wednesday, Bloomberg reported that General Electric (NYSE:GE) is shopping its household appliance business. GE attempted to sell this iconic, but non-core, division in 2008 but was unable to attract sufficient interest. After investing $1 billion in the business, in an attempt to better compete with Whirlpool (NYSE:WHR) and Electrolux (OTCPK:OTCPK:ELUXY), GE expects to only receive +/- $2 billion (though the WSJ reported a target of $4 billion). The company waited until the terms of the Alstom (NYSE:ALO) acquisition were finalized before commencing the sale process. The sale of the famed white goods business would follow the sale of NBCUniversal, the announced IPO of its retail finance business [Synchrony Financial (Pending:SYF)] and the divestiture of non-core real estate as CEO Jeff Immelt focuses on businesses where the company can leverage its scale, utilize a technological edge and/or leverage a dominant market position.

While this divestiture was not specifically anticipated in my article, "Is General Electric The Perfect Company", the action is consistent with the discussion of GE's strengths and strategy, namely a focus on oligopoly-type businesses with recurring revenue and secular growth. The appliance business is a highly competitive business, with multiple participants and is relatively slow growing; all characteristics at odds with GE's focus and value-add proposition.

While GE's prospective sale of the appliance business would not really move the needle, it does reinforce the company's focus on delivering returns to shareholders utilizing its core competencies. Therefore, I reiterate the perspective voiced in my article; GE remains appealing to income oriented investors, while value investors may need to be patient given the relatively high PEG (Price-Earnings/Growth). As always, investors should conduct their own due diligence and make their own decisions.

Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in GE over the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.