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Electrolux in talks to acquire GE Appliances to expand North American reach

General Electric Co. (GE) let out the word that it wished to shed one of its oldest businesses, the century-old home appliance business. The business has more sentimental value for GE than business value. GE Appliances is a low margin business with significant labor costs say insiders. Swedish appliance manufacturer Electrolux AB has stepped forward and held preliminary discussions about acquiring General Electric Co.'s appliances business, joining a group of other potential suitors considering a deal that could expand their reach in North America, according to the Wall Street Journal.

The GE logo is displayed on a General Electric appliance at Fortney's Appliance store in Fort Lauderdale, Florida.
Photo by Joe Raedle/Getty Images

Electrolux has experienced slow growth in European markets and looking to expand its North American reach. Others have the same idea, include South Korea's LG Electronics Inc. and Samsung Electronics Co. as well as Arcelik AS of Turkey, a lower-cost producer.

A spokesperson for GE, Seth Martin, confirmed the interest on the part of Electrolux and hinted the others. "GE is evaluating a wide range of strategic options for our appliances business, including discussions with Electrolux and other interested parties."

Electrolux already has a footprint in North America with not only the Electrolux line, but also with Frigidaire and AEG. Electrolux has traditionally grown through acquisitions, including the following: acquired Frigidaire in 1986, bought AEG's household division in 1994, and bought Chilean appliance manufacturer CTI in 2011.

According to the Wall Street Journal piece, LG and Samsung likely want the GE Appliance business for its manufacturing facilities than the name and product line. However, Electrolux would want the business for both.

The Louisville-based household appliances business, was first reported yesterday by Bloomberg News report. After the market close, Ted Mann of reported that sources told him that the company has now stepped up its efforts to find a buyer the business, which Mann says is one of GE's final ties to American consumers.

Around 6,000 people are employed at Appliance Park, which has added about 3,000 workers and undergone $800 million in renovations since 2009, she added.

This is not the first time that GE tried in 2008 to sell the operation which includes refrigerators, ranges, air conditioners, washing machines and dryer. At that time, the company hired Goldman Sachs Group Inc. to run the sale but ultimately had to pull back on that decision when it couldn't find any potential buyers and plans for a spinoff stalled because of the recession.

After the sale stalled, GE plowed more than $1 billion into the businesses to refresh its entire line of appliances and has added 3,000 jobs at its Kentucky appliance factory since 2010. In 2012 it brought over a senior executive from its aviation division, Chip Blankenship, to get the business back in shape.

GE has since invested heavily in reviving the business and received high marks for its attempts to manufacture more home appliances in the United States.

The business is still profitable, but its low margins and significant labor costs no longer seems a fit for company. The division is said to be out-of-step with GE's other industrial businesses, which sell heavy equipment like jet engines and gas turbines that then generate years of lucrative service revenue.

The company has recently renewed efforts to sell the appliance operation, the people said. "They are out there talking to people trying to get something done," the person said.

GE Chief Executive Jeff Immelt has promised investors to grow his industrial businesses and sell ones that aren't seen as core, setting a target of raising $4 billion from the sales of such businesses this year. Last month, GE agreed to buy the energy assets of Alstom SA for $17 billion, in what would be the company's biggest-ever acquisition.

The Louisville-based appliance operation isn't a large contributor to GE's bottom line. The appliance and lighting businesses earned $381 million, just over 2% of GE's operating profit last year, and it generated $8.3 billion of revenue, less than 6% of GE's total revenue.

GE's board of directors is expected to discuss the sale at a meeting next week, according to Mann's sources.

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