GE May Spin Appliances Unit, Not Sell It

It is apparent that the potential bids GE (GE) has received for its appliance unit are far from what it expected.

With sales of $7.2 billion last year, GE had hoped to get $6 to $8 billion for the unit. The fact it has now decided to consider a spin, an option not originally specified, can only mean conversations with potential buyers have resulted in prices much below that.

In a spin scenario, if it is a tax free exchange like the ones Altria (MO) has done with Kraft (KFT) and Phillip Morris International (PM), GE receives nothing in the exchange. It is shareholders who receive proceeds. The company could opt to retain a percentage of the business and profit from its future growth that way. Perhaps it would spin 50% of it and retain the other half to sell at a later date when the market for it improves. This option may just be a move to pacify shareholders who have been frustrated for the better part of the decade.

No matter what GE does, it is clear this is not unfolding as it expected. Immelt is out stumping the "brand" as if to remind potential buyers the value of having GE on an appliance. I am not sure this is in doubt in the appliance world.

The problem is buyers know that he has to do something because he has already stuck his neck out and had it swiped at. He is also trying to sell into a very weak market. Add those two together and you have a seller who has a problem.

Comments

[notsosmart:]

why sell it? maybe make a superior product with good real people support.get to the top in the consumer magazines in every major appliance category.name recognition is there.just back it with great reliable product.

2008 May 25 08:46 AM

[ajhough:]

The profit margin is too small; however, GE is a good brand and in a spin off, I would be happy to have new company. Many spin offs are very successful.

2008 May 25 09:27 AM

[old fogey:]

My opinion of GE is very poor. GE started out with post war (WW2) vigor, supplying the pent up demand market of new home owning baby boomers. Products started as of military quality, but were soon trimmed of materials and quality as a profit margin increaser.
Advertising costs of the great new communicator (TV) created new sales and expenses. Touted as a better product of latest enginerring it was priced first higher, then just above mid range as quality dropped and demand grew.
Financing I believe became a greater product center than the goods themselves.

Perhaps I am just a disgruntled person of a manufacturing background, that had too many GE products fail prematurely.
By mid sixties, I was weaned never to buy GE again. The quality and value was just not there, and I consider that an ongoing management problem. They may have made stockholders money, but it was on the backs of the consumer.
Sorry about the rant, but I am entitled as being just an old fogey.

2008 May 25 11:03 AM

[dealseeker:]

GE is a great product and the company needs to get real.A spinoff is better for all and other GE subs should be made spin offs IE. NBC.

2008 May 25 11:51 AM

[dj kumquat:]

spin off immelt!

2008 May 25 02:49 PM

[simplesimon:]

Well said, old fogey; I concur. There are a huge number of 'adults' in the marketplace who have never bathed out of a steel helmet, or worked at hard labor until every muscle and joint hurt-nor have they really ever experienced prolonged unemployability. I'm not a gloom and doom guy - just tempered/sobered by how hard things can get. We have all been trending towards decline in virtually every aspect of American life. Only old fogeys seem aware of it. Lots of opinions along the lines of alarm was heard in years past, as we 'evolved' ( cough cough ) into Hummers, and $750K homes -like this would never end. It's a dark and lonely job, but somebody has to take away the spiked punch bowl from this party. On a positive note. let's recover our original technological leadership ( and work ethic/business ethic ) once again- and get crackin' on the lessening of dependence on our "crack " habit (oil -vis, 'crack spread') ( which has a lot more to do with unbridled vanity than energy consumption.

2008 May 25 03:26 PM

[RMA:]

The only Value in Buying the appliances unit is for the distribution network thru builders (and that industry is in a mess due to the Mortgage meltdown) and the brand name. Howe long will GE allow some foreign company to use it's brand name?? And at what cost?? I think a $2-$3 Billion price tag is more realistic.....

2008 May 25 03:59 PM

[kevin dempsey:]

I SUSPECT YOUR TOTALLY WRONG WITH THE DOLLAR SOO LOW FOREIGN COMPANIES CAN AFFORD TO PAY TOP $$$ FOR GE APPLIANCES THEY WILL NOT GET A SECOND CHANCE AT A COMPANY LIKE THIS TO HELP MAKE THE DOMINATE

2008 May 25 04:28 PM

[REBEL:]

Hey Simple Simon, Forget about washing out of your helmet - they're Kevlar now, (and would probably break down / dissolve if you put water in them. Your premise is right on. How many "Adults" would even put down the remote to tend their garden? Right now, very few. Wait a few years though, and I bet at least 100% more will actually perform manual labor. It is funny how hunger motivates
people.

2008 May 25 06:36 PM

[TanToday:]

>>>The only Value in Buying the appliances unit is for the distribution network thru builders (and that industry is in a mess due to the Mortgage meltdown) and the brand name.<<<

Just as with WESTINGHOUSE, a stellar brand name dragged down and sunk when the bean counters and financial wizards decided financing boondoggles in Florida beat making appliances...and innovating in technology.

RIP

LAZARUS!

Brought back to LIFE AGAIN! Resurrected and thriving now as a Korean company using the goodwill, but NOT the technology, nor Americans', as anything but buyers.

GE can live again!

COME FORTH GE, rise and cast off your funeral rags!

2008 May 25 08:28 PM

[TanToday:]

>>>The only Value in Buying the appliances unit is for the distribution network thru builders (and that industry is in a mess due to the Mortgage meltdown) and the brand name.<<<

Just as with WESTINGHOUSE, a stellar brand name dragged down and sunk when the bean counters and financial wizards decided financing boondoggles in Florida beat making appliances...and innovating in technology.

RIP

LAZARUS!

Brought back to LIFE AGAIN! Resurrected and thriving now as a Korean company using the goodwill, but NOT the technology, nor Americans', as anything but buyers.

GE can live again!

COME FORTH GE, rise and cast off your funeral rags!

2008 May 25 08:28 PM

[UnKle AL:]

if there is one thing that all US. manufacturers should have learned by now from the Auto industry is that consumers place a premium on "Reliability" i.e. Toyota and Honda vs. GM. If GE appliance is to be of any value to anyone their products will have to meet this test since , at present, dealers all refer to GE as meaning Generally Expensive not generally reliable.

2008 May 26 11:04 AM

[roughman:]

Contrary to your view, I think it is unlikely GE has received any indications of value regarding the appliance business. Having just announced their interest in selling this business, the GE bankers have not had time to prepare a pitch book on the business and even if they have, potential buyers have not had time to analyze the business and submit preliminary bids. GE's investment bankers would have given the company a good estimate of value prior to any public announcement. GE would be negligent in not considering a spinoff along with a sale as the spinoff is a much more tax efficient option and the company can easily move along parallel paths and make a final decision as bids come in. It is not correct to say GE will get nothing from a spinoff. It is common practice for the parent company to receive a large dividend from the spinco funded by new spinco debt. Alternatively, GE can load some of its current debt onto spinco. Check out Idearc, Windstream and many others. Spinning 50% doesn't make any sense either. A future buyer would not be able to buy a controlling interest and could not consolidate the 50% owned business for tax purposes.

2008 May 26 02:19 PM

[RDR:]

I agree with oldfogey. Unfortunately, I bought a GE refrigerator one week after 9/11/2001 to help stimulate our economy (and we needed a new fridge). Within 4 months it broke. A GE repairman fixed it for 3 weeks. Next I called the repairman from the store where I bought it; he replaced the motherboard and fan and it worked for about 5 years. After the 3rd failure in under 6 years, I fixed it again and it lasted only a month. I presume it is now in the trash, as I bought another brand. After research, I discovered that the side-by-side model GE refrigerators of that year were subject to a recall (after a class action lawsuit). My model was not recalled even though it likely had the same defective electronics and parts. I even contacted Mr. Bill Bower, head of customer relations at GE. Mr. Bower (and GE) could not care less. Check out www.bringgoodthingstol...

The plant that produced the defective side-by-side refrigerators, in Bloomington, IN, has recently closed, throwing people who assembled the poorly designed machines out of work.

To top it off, we kept our old fridge that the GE was supposed to replace. Almost 20 years old, it is in the basement and still works well and has not needed repair; it was our only fridge when the GE broke!

2008 May 26 02:28 PM

[Partly Sunny:]

Over the past two decades I've bought several GE appliances for my home and other properties. I've never failed to be disappointed. Yet, I own their stock. I hope I can sell it soon. I don't want stock in the spin-off corp. I unload trucks for a living, but it's my understanding that if GE kept 50 percent of the stock, it would effectively have controlling interest of the spin-off and would consolidate it on GE's books for tax purposes.

2008 May 26 09:24 PM

[Brian27:]

I bought a builder home and have never replaced my GE appliances that have broken down with GE appliances. I will never buy GE appliances they always breakdown. They only have sales because of their builder contracts and financing. I will not own GE stock with Imelt as chairman. GE sales to Iran are immoral and Imelt should resign.

2008 May 27 10:28 AM

[not for nuthin:]

I read recently that Bush has been covertly trying the undermine Iran's power generation infrastucture since early 2008. Maybe, just maybe, G.E. sold defective technology to Iran for this purpose. One can always hope!!

Jan 10 08:34 PM