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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