GE Out-Maneuvers DOJ Merger Block
Wednesday, January 27, 2016

You all recall the famous tale, those cute little lollipop curls poking around the three bears’ home, finding this porridge too hot and that one too cold, etc. It seems GE is entrenched in the same story, with the DOJ saying Electrolux’s $3.3B deal was too big. In a crafty play on the DOJ’s response, GE is courting China’s Haier, the world’s largest appliance maker, proposing an even larger $5.4 billion dollar offer for the company, which is much smaller in the U.S. than Electrolux, thinking it may be “just right.”

Whether it was some ingenious three-bears-style strategy on GE’s part or just coincidence, it’s interesting to see how this all plays out. In July 2015, the Government sued to stop the proposed sale of GE’s appliance business to U.S. appliance mega-player, Electrolux, for $3.3 billion, claiming Electrolux was essentially “too big.” The Department of Justice believed the merger between GE and Electrolux would give Electrolux “the majority” of the market for retail cooking appliance sales, particularly for lower-priced models, leaving the rest to the only other U.S. appliance giant, Whirlpool. GE and Electrolux initially defended the deal, finding the DOJ’s challenge preposterous in light of its similarity to Whirlpool’s purchase of Maytag back in 2006, which the government allowed to pass without even a divestiture. 

Too hot, too cold, just rightOn December 7th, the first day of the trial and the first day GE was allowed to abandon the sale pursuant to its contract with Electrolux, GE exercised its option to terminate the sale. GE then requested that Electrolux pay the $175 million termination penalty fee and they did. It was the DOJ’s firm stance that if GE and Electrolux merged, the only realistic competitor that would remain in the U.S. would be Whirlpool. Inherent in this argument is that Haier’s small share in the U.S. market would be too small to compete with an enlarged Electrolux. Haier is essentially a non-player in the U.S., meaning a merger between GE and Haier simply would not have the same impact on competition that the Electrolux deal would have. So, Electrolux is too big. Haier is too small. A union between GE and Haier would have to be ─ say it with me ─ ”just right.” 
 
At least that’s the stance GE is taking in proceeding with the sale. The Boards of Directors of both GE and Haier have approved the deal and speculation is that they have no concerns the DOJ will try to intervene, frankly because it does not have a leg to stand on. It would be almost impossible for the government to have just argued Haier is too small to compete and now do an about-face and argue it’s too large. It seems GE may have played this “just right” in setting up a higher-priced, $5.4 billion dollar deal that is almost guaranteed to pass antitrust muster. The transaction, which is subject to regulatory approval and Haier shareholder approval, is expected to close by mid-2016.

 

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