Stockholm: Sweden`s Electrolux AB said on Monday it would double US sales by paying $3.3 billion in cash for General Electric Co`s appliances business in its biggest ever deal, giving it the scale to go head-to-head with larger rival Whirlpool.
GE`s century-old household appliance business, which had $5.7 billion in 2013 revenue, could help the Swedish company expand beyond its core European market, where growth has trailed that in North America.
Electrolux, the world`s second-largest appliance maker by sales, will see its annual sales in North America more than double to over $10 billion, similar in size to Whirlpool`s sales there. It also gets to keep the iconic GE Appliance brands.
The GE unit sells refrigerators, stoves, air conditioners and water heaters under the GE Monogram, GE Cafe and Hotpoint brands.
"I think it`s a historic event for Electrolux. I`m very excited about it. I think the fit - the strategic fit, the industrial logic - is compelling," Electrolux Chief Executive Keith McLoughlin told Reuters.
While the price tag is higher than the $2 billion to $2.5 billion figure that some people familiar with the business had estimated, analysts said the company was not overpaying. The deal includes GE`s 48.4 percent stake in Mexican appliance maker Mabe.
Reuters reported last week that Electrolux was near a deal to buy the GE business for more than $2.5 billion.
The deal is likely to clear antitrust hurdles in the United States, with some asset sales possible to ensure that it complies with antitrust law, according to three experts.
"The ultimate question is whether it (the proposed deal) will affect the cost of refrigerators. I suspect the answer is no," said Evan Stewart of the law firm Cohen & Gresser LLP.
Electrolux said the price was 7.0-7.3 times GE Appliance`s estimated 2014 earnings before tax, interest, depreciation and amortization (EBITDA), based on an enterprise value, including debt, of $3.45 billion, according to ThomsonReuters data.
Including expected annual cost savings of around $300 million, the multiple paid for GE would be much lower at around five times EBITDA, Electrolux Chief Financial Officer Tomas Eliasson told a conference call.
"If they manage to realize the synergies, it`s clearly a good multiple," said Kepler Cheuvreux analyst Johan Eliason, adding that the inclusion of the Mabe stake would strengthen Electrolux`s position in Latin America on top of the clout it is gaining in North America.
"They`re getting access to both North and South America in a very good way, and will become very strong in all of the Americas," Eliason said.
The deal will be financed by a bridge facility, and the company plans a rights issue to raise about 25 percent of the price after the deal`s expected closing next year, Electrolux said.
Investor, the investment company founded by Sweden`s Wallenberg family and owner of 15.5 percent of Electrolux`s capital, gave the deal and the right issue its stamp of approval.
"As the leading owner, with a long-term ownership horizon, we find Electrolux`s acquisition of GE Appliances industrially attractive and fully support it," Investor Chief Executive Börje Ekholm said.
