The pending takeover of GE Appliances by China’s Haier Group follows a 15-year quest for a respectable share of the US market
(From Caixin Online)
By staff reporters Zhang Erchi and Qu Yunxu
A US$ 5.4 billion deal for General Electric’s home appliance division is about to jettison China’s largest appliance maker, Haier Group, into a long-dreamed-for, high-end market in America.
The sale, announced in mid-January but now awaiting regulatory approval and a green light from Haier’s directors, would end the Chinese company’s lengthy quest for a respectable U.S. market share – a quest that dates to 1999, when it broke into the U.S. market with a brand of low-end mini-refrigerators.
By snapping up GE Appliances, which manufactures a wide range of white goods, from freezers to dishwashers, Haier plans to quickly expand its share of the U.S. market, where its previous market share stood at only 2 percent. Annual U.S. sales could grow more than 10-fold, as GE Appliances posted US$ 5.9 billion in revenues in 2014 compared with Haier’s U.S. sales of US$ 500 million.
The pending deal is not without controversy. Some industry analysts in China say Haier may have paid too much, given that Swedish appliance giant Electrolux had offered just US$ 3.3 billion for GE Appliances in September 2014. That offer was withdrawn after U.S. antitrust investigators raised a red flag.
Haier’s bid apparently topped offers from South Korea’s Samsung Electronics and LG, Turkey’s Arcelik A.S., and Chinese appliance maker Midea Group.
But Haier’s bankers appear to be solidly behind the buyout. A person close to the deal who asked that his name be withheld said that state-owned China Construction Bank, government policy lender China Development Bank and Bank of America Merrill Lynch have agreed to finance the buyout and offered US$ 6 billion line of credit to Haier.
The price tag also makes sense from a foreign exchange perspective, said Zhou Qun, general manager of the China business consultancy GfK China.
“Haier sees overseas acquisitions as its most efficient investment,” he said. “The U.S. dollar is likely to rise more, so it’s reasonable for Haier to spend US$ 5.4 billion.”
Liang Haishan, a Haier vice chairman who led the company’s negotiations with GE, said every company participating in what became a fierce bidding war saw GE Appliances as a potential pillar for global expansion. Indeed, he said, the publicly listed Haier division that would officially absorb the American company – Qingdao Haier – is slated to become the main platform for the parent’s overseas assets.
Haier first considered buying GE Appliances in early 2008, Liang said. A takeover of this or another established brand was seen as a logical step after it became clear that the Haier brand was a hard sell in America.
“The acquisition decision was not made recently,” he said. “It’s most difficult to generate brand awareness among American consumers, especially in the higher-end market.” Read more