By Brent Kendall And Ted Mann
The Justice Department sued to block General Electric Co.'s
planned $3.3 billion sale of its appliance business to Electrolux
AB, leaving the company with marquee deals in regulatory limbo on
two continents.
On Thursday, GE executives will meet with European authorities
behind closed doors in Brussels to address issues around the
company's $17 billion acquisition of Alstom SA's energy businesses.
The pressure from regulators is complicating GE's efforts to
radically overhaul its portfolio and focus on its most promising
industrial operations.
U.S. antitrust enforcers are taking a hard look at deals that
would combine top companies in the same industry. In recent days a
judge sided with the Federal Trade Commission and blocked Sysco
Corp's $3.5 billion acquisition of rival US Foods Inc., prompting
Sysco to walk away from the plan. And in April, Comcast Corp.
abandoned its $45 billion pursuit of Time Warner Cable Inc. amid
objections from regulators.
GE's appliance deal was meant to shed a low-margin, slow-growing
business to Electrolux, a Swedish maker of washing machines,
dryers, vacuum cleaners, and other appliances. But the Justice
Department in a suit filed Wednesday said the deal would stifle
competition for certain "white goods," particularly stove tops,
ranges and ovens.
GE and Electrolux said they would "vigorously" defend the
deal.
For GE Chief Executive Jeff Immelt, the antitrust troubles could
jeopardize some of his biggest moves to shift the company back to
its industrial heritage, a central pillar of his legacy after
almost 14 years at the helm. GE is expanding its high-tech
infrastructure businesses such as power turbines and jet engines
and selling off the majority of its giant financial services
business that has powered GE's profits for a generation.
The company's exit from financial services remains on track.
This week, it hit a target of selling more than $20 billion of
financial assets by the end of June. Since announcing in April
plans to sell the bulk of its financing business, GE has struck
deals valued at $23 billion.
But in public comments, Mr. Immelt and other GE executives have
bemoaned the slow pace of regulators, especially in Europe.
Mr. Immelt has blamed a protracted EU review of the Alstom deal
for hurting the French company's finances, and others at GE say
they worry about brain drain at Alstom if employees leave amid the
uncertainty.
"I'm still confident we're going to get [the Alstom deal]
through," Mr. Immelt said during a recent appearance on PBS' "
Charlie Rose." "But again, it's all part of the fact that
regulation has changed. It is much tougher to get things done
anywhere in the world."
The Justice Department filed a 15-page legal complaint
challenging the Electrolux deal, saying the acquisition would
likely lead to "less competition, higher prices and fewer options
for millions of Americans who buy major cooking appliances each
year."
The complaint focuses on the effect that a GE-Electrolux deal
would likely have on the sale of cooking appliances like ranges and
wall-mounted ovens to "contract channel" customers like
home-building companies, property managers and hotels.
Only appliance makers with a wide array of products can
meaningfully compete for those customers, the lawsuit alleges, and
the Electrolux purchase would leave only one other major competitor
in the market, Whirlpool Corp. The three companies currently
account for more than 90% of sales of major cooking appliances to
contract purchasers, the suit alleges.
The proposed deal would put an end to what had been an
aggressive competition between GE and Electrolux for the business
of homebuilders and property managers. "Rather than continuing to
compete for contract channel sales, Electrolux now seeks to obtain
General Electric's huge piece of the pie by buying it," the lawsuit
alleges.
Electrolux disagrees with the Justice Department's
characterization. It said the acquisition would increase
competition and give consumers greater product choices at a wider
range of competitive prices. It hopes to double the size of its
U.S. operations by completing the GE deal, keeping pace with
aggressive rivals like Samsung Electronics Co. and LG Electronics
Inc., Chief Executive Keith McLoughlin said in an interview. "The
competitive landscape has changed over the last 10 to 15 years,"
Mr. McLoughlin said. "Now there's a handful of key global
competitors using scale and leverage to penetrate various markets
around the world. So absolutely the game has changed."
Electrolux has engaged in settlement discussions with the
Justice Department for several months, but those talks haven't been
successful so far, according to Joe Sims, a Washington antitrust
lawyer representing the company. Electrolux remains open to
negotiating reasonable fixes to reach an accord, Mr. Sims said, but
is willing to go to trial. Electrolux said it still expects the
deal to close by year-end.
On GE's Alstom deal, European Commission regulators have raised
concerns about the transaction, saying it would reduce from three
to two the number of major players selling heavy-duty gas turbines
in Europe.
GE has said it is willing to accept some concessions to make the
Alstom deal work, including possibly selling off some intellectual
property it receives from Alstom. But Mr. Immelt has drawn the line
at giving up any of the service revenue GE hopes to rake in from
Alstom's existing installed base of turbines, the large machines at
the heart of gas- and coal-fired power plants.
Lately GE has warned it is prepared to walk away from the Alstom
deal if regulators demand concessions it deems too costly.
Write to Brent Kendall at brent.kendall@wsj.com and Ted Mann at
ted.mann@wsj.com
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