China’s Haier to buy General Electric’s Appliances Business for $5.4B

After a failed deal with Electrolux, General Electric sold its appliances branch to Chinese company Haier for $5.4 billion.

Haier will continue to use the GE Appliances brand and retain the business’s headquarters in Louisville, Kentucky and its current management team, the companies said. The price was expected to be higher than what Electrolux would have paid in part because the business had improved over the past few years.

In addition to agreeing to the sale of the unit, the two companies signed a memorandum of understanding to “cooperate globally and jointly pursue growth project in focus areas” such as the industrial internet, healthcare, and advanced manufacturing.

GE Appliances will remain headquartered in Louisville, Ky., a statement from the firm said. Though, if this transaction goes through, Haier would become the largest player for white goods in the US. Haier would market products under the GE brand, said GE Appliances spokesperson Kim Freeman.

The company has been mostly present in the highly competitive, so-called “value segment” of the USA market and analysts expressed concern about the impact its bigger presence would have on the pricing dynamics.

The news comes after GE’s numerous attempts to reach a deal with foreign companies, all of which were blocked by regulators.

GE also stands to receive a $US175 million breakup fee from the failed Electrolux deal.

GE expects to offset the gain with restructuring in 2016.

Haier Group, which calls itself “the world’s leading home appliance provider”, recorded global revenues of $32.6 billion and profits of $2.4 billion in 2014. The business reported revenue of $5.9 billion past year.

He said Haier will have about 15 to 20 percent of the appliance market, as General Electric does now.

Haier Group Chairman and CEO Zhang Ruimin added: “Haier is committed to investing in the U.S”.

The GE transaction, however, would vault the Chinese company past Electrolux and other rivals in the U.S. market for whitegoods.

GE specializes in large appliances such as dishwashers and refrigerators and boasts a strong brand in North America, where homes typically come furnished with appliances. It is not clear how much of this is split between Appliances and the LED and lighting business, though GE has noted that both are very low margin businesses.

Bank of America Merrill Lynch, and PwC Corporate Finance are advising Qingdao Haier on the M&A, while CICC is an independent financial adviser.