NEW YORK (The Deal) -- Swedish home appliance giant Electrolux on Monday announced its biggest-ever acquisition, agreeing to buy the appliance unit of General Electric (GE) to expand in the U.S. for $3.3 billion in cash and attack rival Whirlpool (WHR) on its home turf.
Electrolux CEO Keith McLoughlin talks to TheStreet's Ruben Ramirez about the deal:
The announcement ignited the buyer's shares, which rose 8.2%, or 15.3 Swedish kronor, to Skr202.80 ($28.57) in Stockholm trading.
"This is a historic moment and important strategic move for the Electrolux group, which takes our company to a new level in terms of global reach and market coverage. GE's premium, high-quality appliances complement our own iconic brands and will enhance our presence in North America," said Electrolux President and CEO Keith McLoughlin in a statement.
To help finance the takeover, Stockholm-based Electrolux said it would also soon launch an $830 million rights issue.
The duo just under a month ago confirmed they were in talks on the division, which GE first tried to sell five years ago. Electrolux says it can squeeze "significant synergies" out of the union by getting better prices on parts and eliminating overlapping administrative functions.
Electrolux, which makes Zanussi, Hotpoint and Frigidaire appliances, has trans-Atlantic deal experience -- in 2011 it paid $690 million take Chile's Cia. Tecno Industrial SA private.
The GE acquisition also appears to be a response to Whirlpool's July agreement to buy Italy's Indesit Co. SpA from conglomerate Fineldo SpA and the Merloni family for 758 million euros ($981.8 million). However, in a conference call, CEO McLoughlin said he'd been working on the acquisition for over a year.
Electrolux is paying well above the $2.5 billion analysts had expected for the Louisville, Ky.-based GE Appliance business. The auction reportedly also drew the interest of New York-based consumer products maker Quirky Inc. and private equity giant Blackstone Group LP. Quirky is already working with GE to craft apps for its smart appliances.
However, some analysts are concerned the GE/Electrolux's agreement could run afoul of competition regulators since it would bring together the second- and third-largest U.S. vendors, respectively, and would rival market leader Whirlpool Corp.
"We believe that this deal will be approved by the regulators," McLoughlin said during the conference. "We don't think it'll be a quick decision."
The executive said the nebulous closing date of sometime in 2015 was related to an extensive regulatory review.
Last year, GE's appliance business had sales of $5.7 billion with Ebitda of $390 million. That's just under 6% of GE's total revenue. The unit was responsible for less than 2% of General Electric's overall profit last year.
The target has 12,000 employees and nine manufacturing sites.
The acquisition will also bring Electrolux a 48.4% investment in Mexican home appliance company Controladora Mabe SA de CV. Mabe manufactures some appliances on a contract from GE.
Deutsche Bank AG and Skandinaviska Enskilda Banken AB will provide initial financing for the acquisition.
In 2008 GE first hired Goldman Sachs Group Inc. to shop the appliances division, whose growth has been sluggish and margins low in recent years. Despite reportedly attracting some interest from suitors including LG Electronics Inc., China's Haier Group Co., Arcelik AS, of Turkey, and partner Mabe, GE was unable to complete a deal amid the period's economic turmoil.
GE has in recent years been concentrating on its higher-margin businesses, including in energy and healthcare, and was long expected to eventually try again to sell the appliances unit. The sale to Electrolux would help GE recoup part of the 11.4 billion euro ($14.8 billion) price it agreed in June to pay for the power unit of France's Alstom SA.
GE earlier said it could sell up to $4 billion worth of non-financial businesses this year in addition to financial services divestitures. In July, the company spun off the North American consumer lending operations of its GE Capital operation to shareholders.
Deutsche Bank AG and SEB Corporate Finance are acting as financial advisers to Electrolux, with Davis Polk & Wardwell LLP providing counsel.
Goldman Sachs is acting as financial adviser to GE, with Sidley Austin LLP providing counsel.