Plans to defend US appliance market scuttled.
It was an audacious move: the acquisition of the venerable General Electric (GE) appliance division by the world’s second largest appliance manufacturer, Electrolux. The purpose of the deal was ostensibly to defend the US market (and therefore Electrolux’ global presence) against the growth of the two Korean giants LG Electronics and Samsung.
But the sale hit strong headwinds when the US Justice Department opposed the deal as being in breach of its anti-trust laws. Following the announcement of the proposed acquisition on September 8, 2014, the Department of Justice sued Electrolux and GE to stop the proposed acquisition on July 1, 2015.
Electrolux and its President and CEO Keith McLoughlin, along with GE put up a strong fight with McLoughlin claiming, “The appliances industry is more competitive than ever.”
“We believe this acquisition accelerates consumer innovation, which improves the industry as a whole, and results in more consumer choice than ever,” he said at the time.
Electrolux had already obtained regulatory approval in Brazil, Canada and Ecuador and the North American transaction was expected to generate annual cost synergies of approximately US$350 million. The largest are expected to come from sourcing, operations and logistics.
However, GE notified Electrolux this week that it had terminated the agreement “pursuant to which Electrolux had agreed to acquire the appliance business of GE. The termination is effective as of December 7, 2015. Therefore, the transaction will not be completed.”
Electrolux said in a statement that it had made extensive efforts to obtain regulatory approvals, and regretted that GE had terminated the agreement, while the court procedure was still pending. Electrolux said it considers that the settlement proposals offered to DOJ were reasonable and would have addressed DOJ’s competition concerns. Unfortunately, these proposals were rejected by DOJ.
“Although we are disappointed that the acquisition will not be completed, Electrolux is confident that the Group has strong capabilities to continue to grow and develop its position as a global appliances manufacturer”, McLoughlin said.
“The strategy to grow profitably in promising segments, product categories and emerging markets remains. The Group’s operations in North America have proved to be strong on its own merits, with good organic growth and a recovery in earnings during 2015. Major Appliances North America has a strong presence in the US under the brands Frigidaire and Electrolux, and we are confident that this position will be maintained and strengthened.”
Electrolux aims at growing its operations globally, both organically and through acquisitions, which is supported by a strong balance sheet and good cash generation.
Under the transaction agreement, Electrolux is required to pay to GE a termination fee of US$175m under certain circumstances. GE has requested pay-out of the amount.
For the period January – September 2015, transaction costs related to the acquisition of SEK 266m and cost for preparatory integration work of SEK136m have been charged. For the fourth quarter 2015, transaction costs and integration costs are expected to amount to approximately SEK175m. The results for the fourth quarter 2015 will also be impacted by costs arising from the bridge facility of approximately SEK225m.