China’s Haier to Buy GE Appliance Business for $5.4 Billion
By LAURIE BURKITT, JOANN S. LUBLIN And DANA MATTIOLI
Updated Jan. 15, 2016 5:17 a.m. ET
BEIJING— General Electric Co. agreed to sell its appliance unit for $5.4 billion to Chinese manufacturer Haier Group, which is looking to expand its products into homes around the world.
GE and Haier announced the deal Friday, saying the companies will cooperate world-wide to expand their reach in health care, advanced manufacturing and the industrial sectors.
The deal will help Haier sell refrigerators, washing machines and other appliances that are already popular in China overseas after years of struggling to gain a stronger foothold in the U.S. and elsewhere. Haier said it will have the rights to use the GE brand for appliances for 40 years.
The acquisition also enables GE to focus on its industrial business—jet engines and power turbines instead of washing machines and even finance.
“Haier has a good track record of acquisitions and of managing brands,” GE’s chairman and chief executive officer Jeff Immelt said in a news release. “Haier has a stated focus to grow in the U.S., build their manufacturing presence here, and to invest further in the business.”
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Qingdao Haier Co., a Shanghai- listed company in which Haier owns 41%, will acquire the GE appliance unit, Haier said. It said the deal “establishes a model for cross-border investment and cooperation between China and the United States.”
The deal, which values GE Appliances at 10 times the last 12 months of earnings before interest, taxes, depreciation and amortization, according to GE, was reported earlier by The Wall Street Journal.
It marks the third major overseas acquisition by Chinese companies this week.
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A consortium of investors including China National Chemical Corp. on Sunday agreed to buy KraussMaffei Group for 925 million euros ($1 billion), one of the largest Chinese takeovers of a German company. Two days later, Chinese conglomerate Dalian Wanda Group Co. agreed to acquire production and finance company Legendary Entertainment for $3.5 billion in cash, the largest China-Hollywood deal to date.
GE has been running an auction for the century-old appliance business since it abandoned a $3.3 billion sale to Sweden’s Electrolux AB in December. The U.S. Justice Department had sued to block that transaction, saying the combination of the two companies would hurt competition for cooktops and ranges. Haier is unlikely to face the same antitrust hurdles as Electrolux because of its small presence in the U.S.
In seeking a fresh buyer, GE executives wanted “a better deal” than they had gotten from Electrolux, one person familiar with the matter said. GE also stands to receive a $175 million breakup fee from Electrolux.
The Chinese appliance maker outbid other foreign corporate bidders for the Louisville, Ky.-based business, according to a person close to the deal.
Haier has struggled to compete in the U.S. While it calls itself the biggest appliance maker in terms of unit sales, Haier is mainly known in the U.S. for niche products such as compact refrigerators and window air-conditioning units.
The privately held company has also been expanding its range of products and retail partners in the U.S. Last August, Haier said it would invest $72 million to expand its 15-year-old refrigerator plant in Camden, S.C.
The GE transaction, however, will vault the Chinese company past Electrolux and other rivals in the U.S. market for white goods, which is currently led by Whirlpool. Sales for the GE Appliances and Lighting division, of which appliances is the lion’s share, were $8.4 billion in 2014.
Haier held talks with GE in 2008 to buy the U.S. firm’s appliance unit. In 2010, a Haier executive said the company didn’t buy at the time because the price for the unit was too high. Haier also made an unsuccessful bid for Maytag Corp. in 2004, but lost out to Whirlpool.
Since then, Haier has been vying for more U.S. retail partners, tapping major advertising agencies in an effort to become a household name. Haier held a 29.8% market share of major household appliance sales in China last year, compared with 5.6% in the U.S., according to market research firm Euromonitor.
For Haier, which had $32.6 billion in revenue world-wide in 2014, growth overseas is critical. Profit margins from the company’s refrigerators and washing machines in China are razor-thin due to increased competition at home, where online shopping has sparked price wars, pushing down prices in the electronics and appliances sector.
Another drag on business is that fewer people in China are buying new homes and thus need fewer new appliances.
The deal will broaden Haier’s customer base and distribution channels. It will also sharpen its credibility in the U.S., where “Chinese brands are perceived as low quality,” said Klaus Meyer, a business professor at China Europe International Business School in Shanghai.
Based in China’s northeastern coastal city of Qingdao, Haier is one of China’s legacy state-owned enterprises. Haier’s chief executive, Zhang Ruimin, was the general manager when the company 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, has become somewhat of a legend in business circles back home, building a no-nonsense demeanor when he, as newly appointed chairman in 1985, grasped a sledgehammer, smashing a faulty refrigerator to demonstrate zero tolerance for shoddy products at the factory.
Within his first decade as chairman, he transformed Haier, creating China’s largest appliance maker and becoming the first businessman appointed to China’s Central Committee, one of the Communist Party’s highest decision-making bodies.
Mr. Zhang built the brand by investing in a cartoon in the 1990s called the “Haier Brothers,” creating mascots that generations in China came to recognize long after the airing of the 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, which calculated the value using the company’s financial data and consumer survey data.
GE Appliances will keep its headquarters in Louisville, Ky, the companies said.
Haier said in a statement to the Shanghai Stock Exchange if the deal ceases due to failure to obtain approvals from antitrust regulators, Chinese regulators or Qingdao Haier’s shareholders, Qingdao Haier will be required to pay $200 million to $400 million to GE as compensation.
GE’s assets Haier is acquiring had a book value of 1.84 billion dollars as of the end of 2014.
—Ted Mann in New York and Rose Yu in Shanghai contributed to this article.