GE Plastics Unit Sale -- Subject to Restrictions

WSJ reports that General Electric Co. is soliciting bids for its plastics business, valued at about $10 billion, which has been hurt by high raw-materials costs (benzene is up 31%) and competition (profits are down 23%). But GE has cautioned interested firms that they face Justice Department restrictions on their ability to team-up with other bidders which forbid them to call other buyout firms to discuss forming a so-called club that pools resources to pursue a single deal. Acting for GE, Goldman Sachs has conveyed deal-terms to four private-equity groups and two potential bidders in the industry. Since taking over in 2001, CEO Jeffrey Immelt has sold-off underperforming businesses including reinsurance, industrial diamonds and motors. Last month he said GE would evaluate the case for holding on to the plastics unit, referring to it as "in a difficult spot," and saying he wasn't committed to wait for a turnaround. In a note last month, Citigroup named Dow Chemical Company and BASF Ag as possible buyers. Mike McGarr, a Becker Capital analyst (Becker owns 800,000 shares): "It's nice to see them get away from the low-margin businesses like this... A lot of the hard work at GE is starting to pay off a bit and we are pleased with what Immelt has done steering toward services and infrastructure."

• Sources: Wall Street Journal, Bloomberg, MarketWatch, GE Dec. 12 'Outlook' Call Transcript (.pdf)
• Related commentary: GE 's Sale of One Unit Adds to Speculation it Will Sell Another, Eye on General Electrics' Transportation Business. Conference call transcript: General Electric Q3 2006
• Potentially impacted stocks and ETFs: General Electric Co. (GE), Dow Chemical Company (DOW), BASF Ag (BF)

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