Electrolux has got the best of General Electric's household clearout. The owner of Frigidaire and AEG is buying the US conglomerate's line of ovens, fridges, washing machines and air-conditioners for a reasonable-looking $3.45 billion. The Swedish company gets extra scale in the US market, which is healthier than Europe, and lots of scope to cut costs. The buyer will pay $3.3 billion in cash, inherit $150 million in debt, and gets GE's 48.8 per cent stake in Mabe, a Mexican white-goods maker. The market applauded. Electrolux shares added 6 per cent by late morning, despite the fact the all-cash purchase will be part-funded by a rights issue.
The enthusiasm looks right. An enterprise value of 7 to 7.3 times 2014 Ebitda is good set against Electrolux's own multiple of 8.4 times at Friday's close. Once $300 million of annual cost synergies are baked in, the effective price would look more like five times Ebitda. Taxing those savings at 35 per cent, capitalising at 10 times, and adjusting for outlays of $360 million or so, would give a net present value of $1.6 billion, nearly half the total outlay. Still, it's not surprising GE wants out. Like auto manufacturing, the appliances industry suffers from low margins, high raw materials costs, and stiff Asian competition. And like cars, these are big-ticket consumer purchases, where demand fluctuates with the economic weather. Extra scale helps. Hence world leader Whirlpool bought Maytag in 2006 and followed up this year by taking control of Italy's Indesit. The big unknown is antitrust. The duo will counter that Samsung, LG and others ensure robust competition. But JPMorgan recently estimated that Whirlpool and Electrolux/GE would have 75 per cent-plus share in several categories Stateside.
If it goes through, though, it will be the end of an era for GE, which has sold appliances since 1907. The name will not disappear from America's kitchens - Electrolux keeps brand rights for 40 years. And the change would fit with GE's increasing focus on heavy-duty industrial businesses like gas and steam turbines. Similarly, rival Siemens, which partners in appliances with Bosch, could also sell up soon. For industrial giants, good housekeeping means switching off household appliances.
The enthusiasm looks right. An enterprise value of 7 to 7.3 times 2014 Ebitda is good set against Electrolux's own multiple of 8.4 times at Friday's close. Once $300 million of annual cost synergies are baked in, the effective price would look more like five times Ebitda. Taxing those savings at 35 per cent, capitalising at 10 times, and adjusting for outlays of $360 million or so, would give a net present value of $1.6 billion, nearly half the total outlay. Still, it's not surprising GE wants out. Like auto manufacturing, the appliances industry suffers from low margins, high raw materials costs, and stiff Asian competition. And like cars, these are big-ticket consumer purchases, where demand fluctuates with the economic weather. Extra scale helps. Hence world leader Whirlpool bought Maytag in 2006 and followed up this year by taking control of Italy's Indesit. The big unknown is antitrust. The duo will counter that Samsung, LG and others ensure robust competition. But JPMorgan recently estimated that Whirlpool and Electrolux/GE would have 75 per cent-plus share in several categories Stateside.
If it goes through, though, it will be the end of an era for GE, which has sold appliances since 1907. The name will not disappear from America's kitchens - Electrolux keeps brand rights for 40 years. And the change would fit with GE's increasing focus on heavy-duty industrial businesses like gas and steam turbines. Similarly, rival Siemens, which partners in appliances with Bosch, could also sell up soon. For industrial giants, good housekeeping means switching off household appliances.