- GE sells storied business to logical buyer for more than expected.
- Sale contemplated; ELUXY was logical buyer.
- Maintain "Buy" on GE as a high yielding value play.
General Electric's (NYSE:GE) storied appliance business looks like it has found a new home with Sweden's Electrolux (OTCPK:ELUXY), according to a Reuter's story and "supported" by rumors driving Electrolux's stock price over 4% higher. The transaction is said to be valued at $2.5 billion, slightly higher than the $2.0 billion estimate previously quoted. Bloomberg reported GE ended negotiations with Quirky ended last week, after the start-up and its financial partner, Blackstone (NYSE:BX), were unable to come to terms with GE. The divestiture is in-line with GE's strategy of focusing on high-value, industrial businesses and follows the Company's successful spin-out of its consumer finance business, Synchrony Financial (NYSE:SYF) in July. Electrolux is currently the number two appliance business in the United States (behind Whirlpool, per research firm Statista). It is not known whether any units will need to be divested to satisfy anti-trust regulators. After failing to sell the appliance business in 2008, GE invested a further $1 billion in the business, but failed to get the desired returns. Expect an announcement as early as this weekend.
The strategy of selling non-core businesses, such as the appliance business was contemplated in a recent article on GE, "Why I Decided To Buy General Electric" and is consistent with GE's strategy of focusing on businesses with high barriers to entry, which are technologically sophisticated and are pseudo-oligopolies. The price of $2.5 billion is somewhat higher than previously estimated in my article, "Update: General Electric Wants To Sell Its White (Elephant) Goods Business".
GE is a "Buy". I am very pleased with GE's continued strategy to focus on becoming a purer-play, global industrial firm, with a focus on products and markets, where it can command premium prices and margins. The company has not participated in the recent stock market rally, continues to sell at a reasonable valuation, and should increase its dividend later this year.
This article reflects the personal opinions of the author and should not be relied upon or used as a basis in making an investment decision. Investors should always do their own due diligence prior to making an investment decision.
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