By Ted Mann and Laurie Burkitt 

Haier Group's proposed $5.4 billion takeover of General Electric Co.'s appliance business would hand the Chinese manufacturer a substantial position in the U.S. market after a decade of trying.

The deal would vault the state-owned company past Electrolux AB and other rivals in the U.S. appliance market--currently led by Whirlpool Corp.--and help bolster profit margins that have been thinned by growing competition in its home market. Haier twice before tried to buy its way into American market. In 2005 it courted Maytag Corp. but ultimately lost out to Whirlpool. Haier tried to buy the same GE business in 2008 before the deal was pulled amid the global recession.

"Haier is committed to investing in the U.S.," Haier Chief Executive Zhang Ruimin said in a statement announcing the deal. It caps a wave of Chinese companies buying businesses abroad and would be the largest acquisition of an American business by a Chinese firm, eclipsing the 2013 purchase of Smithfield Foods Inc. by Shuanghui International Holdings Ltd., according to data from Dealogic.

Haier would take over GE's nine appliance-manufacturing facilities, 12,000 U.S. workers and a long-established brand that would help expand its line of home goods from niche products like wine refrigerators and window air conditioners to $10,000 ranges and refrigerators that connect to the Internet. Haier said it would have the rights to use the GE brand for appliances for 40 years.

For GE, the deal caps a protracted sales process that proceeded by fits and starts for the better part of a decade as Chief Executive Jeff Immelt sought to shed the consumer-facing unit and sharpen the conglomerate's focus on its industrial businesses such as jet engines and locomotives.

GE had tried to sell the business to Sweden's Electrolux in 2014 for $3.3 billion, but that fell apart in December after U.S. antitrust enforcers sued to block that transaction, saying the combination would hurt competition for cooktops and ranges. Just over a month later, GE has found another buyer at a higher price, thanks in part to a rebounding housing market.

The transaction could draw scrutiny by U.S. authorities given that Haier is a state-owned company and Mr. Zhang is a member of China's Central Committee, one of the Communist Party's highest decision-making bodies. It also comes in an election year when candidates vying for the presidential nominations have taken jabs at China's growing global clout.

GE officials expressed confidence the deal wouldn't be blocked by regulators. Chip Blankenship, CEO of Louisville, Ky.-based GE Appliances, said in an interview that Haier's U.S. market share is small, so it shouldn't raise the same concerns that thwarted the Electrolux deal.

Typically hurdles arise in Chinese acquisitions related to technology or defense, so an appliance deal may not turn up a security threat, said Michael Wessel, a member of the U.S.-China Economic and Security Review Commission. "This is an issue more about brand acquisition," Mr. Wessel said.

In 2005, for example, Cnooc Ltd. abandoned its effort to acquire U.S. oil producer Unocal in the face of intense opposition in Washington.

The GE Appliances acquisition would mark the third major overseas purchase by Chinese companies this week. Other deals involved the purchase of a German manufacturer and one to buy a Hollywood production and finance company.

Based in China's northeastern coastal city of Qingdao, Haier started in 1984 as a successor to a loss-making refrigerator factory that had been opened in 1949, when Chairman Mao Zedong founded modern China.

Mr. Zhang, now 67 years old, is a prominent figure in business circles back home. He started building a no-nonsense reputation when, as newly appointed chairman in 1985, he smashed with a sledgehammer a faulty refrigerator to demonstrate zero tolerance for shoddy products at the factory.

He helped build the brand by investing in a cartoon in the 1990s called the "Haier Brothers," creating mascots that many in China recognized long after the airing of more than 200 episodes. Today, Haier has become one of the China most valuable brands, worth $1.9 billion in 2015, according to media agencies Millward Brown and WPP.

Although it had $32.6 billion in revenue world-wide in 2014, Haier is little known in the U.S. The company's U.S. market share of major home appliances is 5.6% compared with 29.8% in China, according to market research firm Euromonitor.

Sales for GE Appliances and Lighting, of which appliances make up the lion's share, were $8.4 billion in 2014. Haier would keep GE Appliances' current leadership in Louisville, and its name.

Haier currently has a refrigerator factory in Camden, S.C., a plant in Mexico, and a research facility in Evansville, Ind., all of which it plans to keep open, a company spokesman said.

For Haier, growth overseas is critical. Not only have profit margins in China been hit by increased competition, online shopping has sparked price wars, and the housing market has cooled off.

Qingdao Haier Co., the unit of Haier Group that would purchase GE Appliances, trades on the Shanghai stock market. It bought a New Zealand appliance company Fisher & Paykel Appliances Holdings Ltd. in 2012, a spokesman for the company said. Private-equity firm Kohlberg Kravis Roberts & Co. bought a 10% stake in the unit in 2013.

"Haier had always fancied themselves the GE of China so now they get the real thing," Bernstein analyst Steve Winoker wrote in a note.

William Mauldin contributed to this article.

 

(END) Dow Jones Newswires

January 15, 2016 19:47 ET (00:47 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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