Sweden’s Electrolux said on Monday it would double U.S. sales by paying $3.3 billion in cash for General Electric’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.
“The global appliance business has become quite competitive,” Electrolux CEO Keith McLoughlin said in an interview Monday on CNBC’s “Squawk Box.” “You need to have large-scale global competitiveness in order to compete. So I think the combination of the GE Appliance group with the Electrolux group is a significant opportunity for us to enhance our competitiveness globally.”
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’s 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 $2.5 billion figure people familiar with the deal suggested to Reuters last week, analysts said the company was not overpaying. The deal includes GE’s 48.4 percent stake in Mexican appliances maker Mabe.
Electrolux said the price was 7.0 to 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 Thomson Reuters 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 realise the synergies, it’s clearly a good multiple,” said Kepler Cheuvreux analyst Johan Eliason, adding 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.
