As Electrolux prepares to fight in court to buy General Electric Co. assets, the Swedish home appliance maker may prefer to sell brands rather than factories if it tries to reach a settlement to salvage the $3.3 billion deal before the judge’s verdict.
To satisfy U.S. Department of Justice opposition to the agreement, a sale of manufacturing sites “would be a commercial nightmare,” said Handelsbanken analyst Karri Rinta. Selling GE oven brands makes more sense although it might be “insufficient.”
The Justice Department has argued that Electrolux’s planned takeover of GE’s appliance business would leave some buyers only two options for their household cooking goods purchases: Electrolux and Whirlpool. Electrolux CEO Keith McLoughlin is counting on the acquisition unveiled more than a year ago to rival Whirlpool for the No. 1 spot in the U.S. appliance market and extract annual cost synergies of some $350 million. Electrolux has its North American headquarters in Charlotte.
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As the two sides headed to a Washington federal court where a trial started Monday, analysts said it’s likely that a court verdict will decide the fate of the deal, though the Swedish company may still propose remedies to assuage antitrust concerns. The sale of brands like GE’s low-end Hotpoint and more expensive Monogram lines make “more sense” for both Electrolux and prospective buyers than factory sales, according to Rinta. Factories often make products for different brands and types of consumers, complicating their disposal.
The deal could be “diluted significantly or, at worst, it could fail completely,” he said. “It’s now looking increasingly unlikely that there will be a settlement before the verdict.”
The Justice Department has argued in court papers that the deal will lead to a duopoly in the supply of major cooking appliances because the “Big Three” suppliers GE, Electrolux and Whirlpool have a combined 90 percent of the market for so-called contract buyers like home builders and property managers.
Electrolux is likely to argue that consumers aren’t at risk because the appliance market is characterized by constant price pressure, Danske Bank analyst Björn Enarson said by phone.
“On paper, the (Justice Department) has a very strong case, but in reality Electrolux has a strong case for the argument that consumers won’t suffer,” he said. “The visibility on how the judge will rule is zero.”
So far, Electrolux’s proposals have failed to result in a settlement with the DoJ and a war of words is intensifying ahead of the start of the trial.
Joe Sims, a lawyer representing Electrolux, said Thursday the government won’t settle for anything less than Electrolux divesting its entire U.S. business. His comments followed those of Justice Department lawyer Ethan Glass last month that the two sides remained far apart. “We’re on earth and they’re on Mars,” Glass said at a hearing.
Electrolux is confident in the merits of its case and notes the Justice Department hasn’t outlined what it would take for them to accept the deal, company spokesman Paul Palmstedt said by telephone.
“An offer that is attractive to the (Justice Department) is not going to be attractive to Electrolux’s shareholders,” according to Rinta.
Electrolux shares have lost 8 percent of their value since the Justice Department filed its suit, and may have further to go. Morgan Stanley analysts last week put the downside risk to the estimated value of Electrolux shares if the deal is scrapped at between 4 percent and 17 percent.
Electrolux employs about 900 people at its operation on David Taylor Drive in Charlotte’s University City area. CEO Keith McLoughlin has said the headquarters will remain in Charlotte after the GE deal, but the company is determining whether to move ahead with a planned expansion to double the Charlotte headquarters’ size.