Charlotte will be at the center of the U.S. appliance market after Electrolux completes its planned $3.3 billion acquisition of General Electric’s appliance business, a deal that would create a company to rival Whirlpool’s market share.
Electrolux CEO Keith McLoughlin said Monday the Stockholm-based company is still digesting the deal and doesn’t know if employment will rise in Charlotte. But he said the city will remain the combined company’s North American headquarters.
“Charlotte is the headquarters and will be the headquarters, and the size of the business just doubled,” McLoughlin told the Observer. “I would say that the opportunity in Charlotte just got better.”
The acquisition is Electrolux’s largest-ever deal. The Swedish appliance-maker moved its North American headquarters to Charlotte in 2010, lured in part by a $27 million state and local incentives package. In December, Electrolux announced an $85 million expansion of its facilities in the University City area, supported by a $34 million incentives package.
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The company employs 925 people in Charlotte and has said it expects to increase that number to 1,600 by the end of 2017.
But the mayor of Louisville, Ky., where GE Appliances is headquartered, said his city and state plan to fight hard to keep jobs – and attract more.
“This isn’t just a transaction to us. GE is part of the heartbeat of our city, in the DNA of our city,” Mayor Greg Fischer told the Observer. The company’s sprawling Appliance Park in Louisville employs 6,000 workers, including 3,700 hourly manufacturing employees.
“Naturally, what we want is to grow the employment here. We’ll be trying to do here what Charlotte’s done there” in terms of attracting more jobs, Fischer said. GE has invested $1 billion to modernize and expand its Appliance Park manufacturing facilities in recent years.
GE confirmed last month it was in talks to sell its appliances division – maker of the first electric toaster more than 100 years ago – as part of its effort to focus on selling more profitable industrial equipment. Many consumers think of GE as a maker of washers, dryers and refrigerators, but appliances accounted for only about 4 percent of the company’s 2013 revenue, as GE reaped far more from segments such as airplane engines.
Electrolux plans to keep the GE brand and said it has a long-term license agreement for the name as part of the deal.
“It’s a very good fit,” said Dinesh Kithany, a senior analyst for home appliances with IHS Technology. He said GE took its time with the sale to find the best buyer for its appliance business, including assurances that the GE brand name would live on. “It’s like their baby, and they want their baby to be known the way it was,” he said.
Together, Electrolux/GE and Whirlpool will control almost 75 percent of the U.S. market for consumer appliances, split almost equally between the companies, according to market share data from IBIS World.
In July, Whirlpool acquired a majority stake in Italian appliance-maker Indesit for $1 billion, a deal that boosted Whirlpool’s reach in Electrolux’s home turf of Europe.
Electrolux and Whirlpool will be by far the largest players in the U.S. market, although fast-growing rivals such as Samsung continue to pressure established appliance companies. The deal continues Electrolux’s pivot toward fast-growing markets in North America and away from its traditional European markets, which are growing at a sluggish pace.
After the deal closes, Electrolux will get 47 percent of its revenue from North America and 23 percent from Europe. That’s a sharp contrast to five years ago, when 50 percent of the Electrolux’s revenue was from Europe.
McLoughlin said he doesn’t expect a quick antitrust decision from regulators, who will likely scrutinize the deal because of concentration in the U.S. market. The deal is expected to close in mid-2015.
“This will make us a very large player in North America, and it will get a good, thorough review by the regulators,” he told the Observer. “Our expectation is it will be approved.”
Jobs for Charlotte?
McLoughlin said the company still needs to process the merger’s implications for the Charlotte expansion project, including whether it will need more or less space.
Some of GE’s Louisville-based administrative jobs could shift to Charlotte under a merger, Tim Somheil, editor of ApplianceMagazine.com, a trade publication that tracks developments in the industry, said last week.
“That would be a logical step if one of their goals is to consolidate and make the operations more efficient in the United States,” he said.
Gov. Pat McCrory said in a statement Monday that the acquisition is “great news for Electrolux and our state.”
Electrolux said it expects $300 million in cost savings from the deal, which McLoughlin said would stem mostly from improved purchasing power for materials and parts such as steel and motors. But he acknowledged there would be some redundant positions among the two companies.
Electrolux also said it plans to “optimize” the combined manufacturing operations, which could lead to factory consolidation. Electrolux employs about 500 workers at a dishwasher manufacturing plant in Kinston, and 1,900 workers at a refrigerator plant in Anderson, S.C.
The company hasn’t announced the leadership of the combined company but will do so in coming weeks, McLoughlin said. Jack Truong, who lives in Charlotte, has been CEO of Electrolux Major Appliances North America since 2011. Chip Blankenship was named CEO of GE Appliances in 2012.
At a press conference Monday, Blankenship said it’s too soon to say what could happen with specific jobs and plants.
“No decisions have been finalized. Each company has numerous manufacturing, research and sales (operations),” he said. “That’s all part of the process going forward for integration.”
McLoughlin said the company needs to address regulatory approvals before getting into specifics on factory locations.
Complementary GE brand
In addition to its own brand, Electrolux sells under the Zanussi, AEG, Frigidaire and Eureka trademarks. In July it posted a second-quarter net loss of 92 million kronor ($13.5 million), citing large restructuring charges. But it said demand in Europe and the United States was picking up, and its North American second-quarter profits were its highest ever.
Adding GE Appliances’ $5.7 billion in sales, the combined company would have $22.5 billion in annual revenue, the companies said. The combined company would have 73,000 employees.
GE Appliances’ products include refrigerators, freezers, cooking products, washers and dryers, and air conditioners. It has 12,000 workers, about half in Louisville.
“GE Appliances’ people, valuable home appliances brand, products, distribution, and service capabilities make it a perfect fit with Electrolux and its goal of accelerating growth in the U.S.,” GE Chief Executive Officer Jeff Immelt said in a joint statement from the two companies.
GE’s appliances complement what Electrolux sells, fitting in between its mainstream Frigidaire brand and its premium Electrolux line, McLoughlin said.
Immelt has been restructuring GE, which traces its roots to the late 1800s and inventor Thomas Edison, to focus on its industrial businesses, which are expected to produce 70 percent of earnings by 2016. The company has pared back banking units that came under pressure during the banking crisis and sold its stake in media company NBC Universal.
Electrolux shares rose 5 percent to 197.10 kronor ($27.28) in trading in Stockholm. GE shares closed at $26.08, down less than 1 percent.