Exclusive: Electrolux near $2.5 billion-plus deal to buy GE unit: sources

NEW YORK/STOCKHOLM Thu Sep 4, 2014 11:57am EDT

The Electrolux logo is seen during the IFA Electronics show in Berlin September 4, 2014.  REUTERS/Hannibal Hanschke

The Electrolux logo is seen during the IFA Electronics show in Berlin September 4, 2014.

Credit: Reuters/Hannibal Hanschke

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NEW YORK/STOCKHOLM (Reuters) - Sweden's Electrolux AB is near a deal to buy General Electric Co's iconic appliance business for more than $2.5 billion, in a move that would significantly expand its reach in North America, people familiar with the matter said.

The companies are hammering out final terms of a deal and could announce their agreement as soon as next week, the people said on Thursday, asking not to be named because the matter is not public.

Shares of Electrolux jumped on news of a possible deal, rising 4.73 percent to 190.40 Swedish crowns and giving it a market capitalization of more than $8 billion.

Discussions are ongoing and could still take longer to finalize, the people cautioned. Representatives for GE and Electrolux declined to comment.

GE's century-old household appliance business, which along with lighting generated $8.3 billion in 2013 revenue, could help the Swedish appliance manufacturer expand beyond its core European market where growth has trailed that in North America.

Electrolux, which sells under brands such as Frigidaire, AEG and Zanussi as well as its own name, is already the world's second-largest home appliance maker after Whirlpool Corp.

GE had confirmed in August that it was evaluating strategic options for the home appliance business, including discussions with Electrolux and other interested parties.

With a price tag of more than $2.5 billion, Electrolux appears to be paying top dollar to win the asset. The GE business, which sells products under the GE Monogram, GE Cafe and Hotpoint brands, could be worth between $2 billion and $2.5 billion, people familiar with the matter have previously said.

The U.S. diversified conglomerate has revived efforts to divest the profitable, but low-margin unit as Chief Executive Jeffrey Immelt seeks to exit businesses where GE is not a global leader and allocate resources to higher-growth businesses.

Fairfield, Connecticut-based GE put the business up for sale in 2008 but talks fizzled out in the face of the global recession. Immelt instead opted to invest $1 billion in new factories and products to make the business more competitive.

Still, the unit is almost exclusively focused on the U.S. market and lacks global scale, and GE believes it could be more valuable when being part of a global appliances group such as Electrolux, said one person familiar with the divestiture plan.

After suffering from weak economies and currencies in Europe and Brazil that cost cuts and improvement in the North American market could not offset, Electrolux has seen European demand start to recover this year, albeit it still lags North America.

In 2013, western Europe accounted for 28 percent of group sales while North America represented 32 percent. Organic growth in North America was 7 percent while in Europe it was 0.4 percent.

GE's Immelt is seeking to increase GE’s profit contribution from its industrial manufacturing businesses to 75 percent by 2016, up from about 55 percent last year, while reducing exposure to its finance arm.

Toward that end, GE earlier this year struck a $16.9 billion deal to buy the power assets of France’s Alstom, and is exiting its North American consumer finance business.

The U.S. conglomerate also wants to boost its industrial profit margin to 17 percent by 2016, up from 15.7 percent last year, as it seeks to simplify its operations and cut costs.

(Reporting by Soyoung Kim in New York and Sven Nordenstam in Stockholm, additional reporting by Lewis Krauskopf in New York; Editing by Meredith Mazzilli and Nick Zieminski)

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