GE to Sell Appliances Business to China's Haier for $5.4 Billion
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General Electric Co. agreed to sell its century-old appliance business to China's Qingdao Haier Co. Ltd. for $5.4 billion in cash, a month after abandoning a deal with Sweden's Electrolux.
The $3.3 billion-proposed deal with Electrolux fell through following months of opposition from U.S. antitrust regulators.
The deal, which will boost Haier's presence in the United States, values the business at 10 times earnings before interest, taxes, depreciation, and amortization (EBITDA) in the last 12 months, GE said.
The deal, so far the biggest by Haier, will be subject to "customary regulatory filings in China and antitrust approvals in the United States, Mexico and Argentina," said a person authorized to speak on behalf of Qingdao Haier.
The transaction is also to be approved by shareholders of Qingdao Haier -- KKR and Haier Group, who jointly own 50.8 percent of the company, the person said.
Haier will continue to use the GE Appliances brand and retain its headquarters in Louisville, Kentucky along with its current management team, the companies said.
The transaction includes GE Appliances' 48.4 percent stake in Mabe, a Mexican appliance company that has operated a joint venture and has had a sourcing relationship with GE Appliances for 28 years, Haier said.
"We expect the [deal] confirmation to increase concerns on the dynamics in the U.S. appliances industry," Morgan Stanley analyst Lucie Carrier wrote in a note to clients.
Haier has limited presence in the United States, hence the acquisition would be complementary to its existing range of products and operations, the person added.
"The GE acquisition will give the white goods maker better sales channels in the U.S. and a better relationship with retailers," said David Cogman, a Hong Kong-based partner with McKinsey.
"You also have the potential over time to create cost synergies from such things as sourcing and shifting manufacturing," he added.
GE said it expects the deal to generate an after-tax gain of about 20 cents per share upon closing, which will be offset by restructuring in 2016.
In 2014, GE Appliances had about $5.9 billion in revenue and $400 million in EBITDA. The company employs about 12,000 workers globally, 96 percent of whom are based in the United States.
Goldman Sachs was GE's finiancial adviser and Sidley Austin LLP was its legal adviser.