friday, 3 july of 2015

GE’s Divestiture Plans Hit Hurdles

The Justice Department sued to block General Electric Co.’s planned $3.3 billion sale of its appliance business to Electrolux AB, leaving the company with marquee deals in regulatory limbo on two continents.

On Thursday, GE executives will meet with European authorities behind closed doors in Brussels to address issues around the company’s $17 billion acquisition of Alstom SA’s energy businesses. The pressure from regulators is complicating GE’s efforts to radically overhaul its portfolio and focus on its most promising industrial operations.

U.S. antitrust enforcers are taking a hard look at deals that would combine top companies in the same industry. In recent days a judge sided with the Federal Trade Commission and blocked Sysco Corp’s $3.5 billion acquisition of rival US Foods Inc., prompting Sysco to walk away from the plan. And in April, Comcast Corp. abandoned its $45 billion pursuit of Time Warner Cable Inc. amid objections from regulators.

GE’s appliance deal was meant to shed a low-margin, slow-growing business to Electrolux, a Swedish maker of washing machines, dryers, vacuum cleaners, and other appliances. But the Justice Department in a suit filed Wednesday said the deal would stifle competition for certain “white goods,” particularly stove tops, ranges and ovens.

GE and Electrolux said they would “vigorously” defend the deal.

For GE Chief Executive Jeff Immelt, the antitrust troubles could jeopardize some of his biggest moves to shift the company back to its industrial heritage, a central pillar of his legacy after almost 14 years at the helm. GE is expanding its high-tech infrastructure businesses such as power turbines and jet engines and selling off the majority of its giant financial services business that has powered GE’s profits for a generation.

The company’s exit from financial services remains on track. This week, it hit a target of selling more than $20 billion of financial assets by the end of June. Since announcing in April plans to sell the bulk of its financing business, GE has struck deals valued at $23 billion.

But in public comments, Mr. Immelt and other GE executives have bemoaned the slow pace of regulators, especially in Europe.

Mr. Immelt has blamed a protracted EU review of the Alstom deal for hurting the French company’s finances, and others at GE say they worry about brain drain at Alstom if employees leave amid the uncertainty.

“I’m still confident we’re going to get [the Alstom deal] through,” Mr. Immelt said during a recent appearance on PBS’ “ Charlie Rose.” “But again, it’s all part of the fact that regulation has changed. It is much tougher to get things done anywhere in the world.”

The Justice Department filed a 15-page legal complaint challenging the Electrolux deal, saying the acquisition would likely lead to “less competition, higher prices and fewer options for millions of Americans who buy major cooking appliances each year.”

The complaint focuses on the effect that a GE-Electrolux deal would likely have on the sale of cooking appliances like ranges and wall-mounted ovens to “contract channel” customers like home-building companies, property managers and hotels.

Only appliance makers with a wide array of products can meaningfully compete for those customers, the lawsuit alleges, and the Electrolux purchase would leave only one other major competitor in the market, Whirlpool Corp. The three companies currently account for more than 90% of sales of major cooking appliances to contract purchasers, the suit alleges.

The proposed deal would put an end to what had been an aggressive competition between GE and Electrolux for the business of homebuilders and property managers. “Rather than continuing to compete for contract channel sales, Electrolux now seeks to obtain General Electric’s huge piece of the pie by buying it,” the lawsuit alleges.

Electrolux disagrees with the Justice Department’s characterization. It said the acquisition would increase competition and give consumers greater product choices at a wider range of competitive prices. It hopes to double the size of its U.S. operations by completing the GE deal, keeping pace with aggressive rivals like Samsung Electronics Co. and LG Electronics Inc., Chief Executive Keith McLoughlin said in an interview. “The competitive landscape has changed over the last 10 to 15 years,” Mr. McLoughlin said. “Now there’s a handful of key global competitors using scale and leverage to penetrate various markets around the world. So absolutely the game has changed.”

Electrolux has engaged in settlement discussions with the Justice Department for several months, but those talks haven’t been successful so far, according to Joe Sims, a Washington antitrust lawyer representing the company. Electrolux remains open to negotiating reasonable fixes to reach an accord, Mr. Sims said, but is willing to go to trial. Electrolux said it still expects the deal to close by year-end.

On GE’s Alstom deal, European Commission regulators have raised concerns about the transaction, saying it would reduce from three to two the number of major players selling heavy-duty gas turbines in Europe.

GE has said it is willing to accept some concessions to make the Alstom deal work, including possibly selling off some intellectual property it receives from Alstom. But Mr. Immelt has drawn the line at giving up any of the service revenue GE hopes to rake in from Alstom’s existing installed base of turbines, the large machines at the heart of gas- and coal-fired power plants.

Lately GE has warned it is prepared to walk away from the Alstom deal if regulators demand concessions it deems too costly.

(Published by The Wall Street Journal - July 1, 2015)

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