Electrolux to Pay $175 Million for Failed GE Deal
December 09 2015 - 2:20PM
Dow Jones News
STOCKHOLM—Electrolux AB's failed ambition to acquire General
Electric Co.'s appliance business came at a price: The Swedish firm
said Wednesday it would pay the $175 million break-up fee demanded
by the U.S. company.
The charge, compounded with the botched promise of creating a
white-goods giant capable of rivaling with Chinese leaders and
Whirlpool Corp. of the U.S., might also cost Keith McLoughlin his
job as Electrolux chief executive, analysts said.
"Electrolux has put a lot of time, money and prestige into this
deal," said Mattias Eriksson, chief strategist at Nordea. "As the
company goes back to the drawing board it might be a natural time
to switch chief executive."
Mr. McLoughlin didn't respond to requests seeking comment.
According to a company spokesman, he has said he was "fully
committed to continue in (his) role."
GE's decision at the start of the week to abandon a $3.3 billion
agreement to sell its appliance business to Electrolux has tossed
the Swedish company 15 months backward, when it was trying to solve
a delicate equation: How to counter the onslaught of Chinese and
South Korean appliance manufacturers on its traditional Western
markets while conquering positions in Asia.
A big expansion in the U.S., where Electrolux has a 20% market
share, could prove difficult after the U.S. Justice Department
challenged the proposed transaction with GE in court, sending a
message that it wants more competition, not consolidation.
When the deal collapsed on Monday, a lawyer for the Justice
Department said it would have been "bad for the millions of
consumers who buy cooking appliances every year. Electrolux and
General Electric could not overcome that reality at trial."
Mr. McLoughlin said Monday he was confident Electrolux could
expand in emerging markets.
But the CEO has presided over several failed attempts to
increase Electrolux's sales in China. In 2013 he ended a strategy
to compete head-on with local rivals for cheap home appliances,
instead launching an effort to move the Electrolux brand upmarket
in the country. But the new approach hasn't fared better than the
previous one, the company says.
Electrolux generates 18% of its 112 billion Swedish krona ($13.9
billion) in annual sales from Latin America and 8% from the Asia
and Pacific region. That remains far off its long stated goal of
generating half of its sales from emerging markets.
The U.S. flop is a setback for Mr. McLoughlin, a graduate of the
U.S. Military Academy at West Point, who had announced the proposed
deal—the largest ever for Electrolux—with much fanfare in September
2014.
"This is an 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," he said at the time.
Throughout the review process, however, Mr. McLoughlin appears
to have underestimated the antitrust obstacle posed by the Justice
Department, saying repeatedly he was confident Electrolux could
secure the purchase with minor concessions.
Mr. McLoughlin's appearance in the Washington court handling the
case on Nov. 19 caused confusion. Days after the CEO testified that
a combination of Electrolux and GE's appliance businesses wouldn't
hinder competition, providing details on product-offering
developments by competitors to support his claim, lawyers for the
Swedish company said Mr. McLoughlin had made incorrect statements
which he wanted to retract.
Mr. McLoughlin has survived several controversies in Sweden.
Upon taking the CEO job in January 2011, he was criticized in
Swedish media for collecting the country's biggest executive
paycheck. More recently, the Swedish press questioned his choice of
moving into a luxurious hotel after terminating the lease on his
Stockholm house.
Despite the failed deal with GE, Mr. McLoughlin continues to
enjoy support from Electrolux's biggest shareholder, Investor AB,
the investment vehicle of the prominent Swedish Wallenberg
family.
Investor, however, said it was expecting a new roadmap from the
CEO.
"Now we have to look forward and find other ways to develop the
company," said Stefan Stern, a spokesman at Investor.
An Electrolux union delegate in Sweden, Viveca
Brinkenfeldt-Lever, said employees had been disappointed to see GE
pulling the plug on the proposed deal without waiting for the
outcome of the antitrust trial initiated by the Department of
Justice.
On Mr. McLoughlin, she said: "He has our full support."
Write to Christina Zander at christina.zander@wsj.com
(END) Dow Jones Newswires
December 09, 2015 15:05 ET (20:05 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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