Taking a bit of a break from questionable caricatures and beef mudslinging, General Electric Company has put GE Appliance on the block. The American Chaebol (although without the mafia style management) is trying to streamline their operations so to look more “sexier” to Wall Street. The feeling on the street is that GE Appliance is dead weight, with slow growth and anemic margins and should be jettisoned ASAP. The suitors? LG and Haier.
Breaking into a global market is hard. Having the GE brand would be a coup to Haier, who failed in their attempt to buy Maytag. Per the IHT:
“For Haier, strategically, it’s a very attractive asset,” said an investment banker based in Hong Kong who did not want to be identified because his bank is working with a private equity firm interested in the deal. “But there are questions over whether this deal would be too big, too soon for that organization.”
Too big? Word is that Haier is talking to the China Development Bank to get some “indirect” PRC financial horsepower into play.
LG already has a strong presence in the white goods industry and some are questioning LG’s interest. The Korean Times gushed with the prospect. However, LG already makes premium priced refrigerators, washers and dryers. GE products are sold at a lower price point. There are already a lot of duplication between the two groups, thus LG would have to strip mine GE Appliance to squeeze any long term value from the deal. However, the temptation to snatch up a major appliance icon may be too great to pass-up. It will be interesting.
21 Comments
It might be a good move to acquire GE if it enables LG to reduce its costs and sell its products at more competitive prices. The LG washers and dryers I’ve seen in Canada were the most expensive in the store by a fairly large margin.
If they do buy GE Appliance, I won’t buy anything from them (or any other Korean product)in the future. This I promise.
Maybe we should allow LG to buy GE Appliance. Then in a few years if they are able to get it back in the black, we can Lone Star LG and claim they got an unfair price~!! Or perhaps we can just nationalize any factories they build on US soil. It’s time for the goose to do as the gander. Korea should now expect “reciprocal” treatment from the US.
한국제품불매합시다~!!
I’d root for Haier if they had kept their adorable boy-love logo when they entered the US market.
Link’s broken, Sonagi.
@#1
I’ve noticed that too. LG’s stuff looks pretty cool (… or as cool as appliances can look, which isn’t much), but the ‘coolness’ stops right when the customer’s eyes fall on the price tag.
Me? I’ll stick to the local laundromats for now.
@#2
Wow. Well, can’t go much farther than that… except maybe #3.
Were this a case of GE or another American company trying to buy LG, a lot of Koreans would be unhappy, but as it involves a Korean company potentially buying an American one, I guess that’s considered totally acceptable.
# 6,
True. True.
Why does LG want to buy that brand mark when they could simply improve their existing line of goods and work on their own marketing?!
LG has got to be better than GE in more than a few appliance categories already so why run the risk of diluting one’s branding, especially considering the poor reliability of more than a few GE consumer products?
This does not make sense to me.
A little inside information here. Having been to many of the LG factories in Mexico and been on the production lines there, it is interesting to note that LG is already a fairly large OEM supplier of GE products. You can see GE products rolling off the lines at the major LG factories in Mexico. Not to mention Apple, IBM, and a few other brands as well.
@#9
I think a lot of people (including me) tend to forget the real-life impacts of globalization. I say that I have an “American” laptop b/c the brand is HP, but I wonder just what portion of this laptop is domestically made. However, I’m fairly certain the $5 T-shirt I have with the marking Made in China is actually 100% from China.
they’re simply cutting areas that have less profit margin and are weak opportunity segments at best. standard operating procedure. it could be very valuable in terms of distribution channels business structure for a company interested in that type of margin, like a haier or an lg. the difference between the two would be that haier’s strategy is offensively bulding a global brand and lg’s is defensively (albeit temporarily)preventing haier from building a directly competitive global brand.
This link’s even better.
If it doesn’t work, google “Haier logo” and look for the two panty-clad boys locked in a shoulder embrace.
yeah, that kind of logo would never work here. may remind people of the days of plantation and the master’s visits at night. lol!
#9,
Yes, I was going to mention that. When Samsung started selling its own products in Canada it was obvious it’s factories were making stuff for others because their products were identical. As a matter of fact, electronics retailers sold Samsung to their customers by mentioning that connection.
American companies are valued at higher P/E Ratios than Korean companies, so when a Korean company buys an American company they pay top dollar, and when US companies buy a Korean company, they buy it on the cheap.
“Why does LG want to buy that brand mark when they could simply improve their existing line of goods and work on their own marketing?!”
The only reason that I can see is for LG to prevent the Chinese from getting it and leap frogging over decades of branding pain.
LG has positioned itself in the US Appliance Market as a Boutique brand. Purchasing GE Appliance would give them entry level and mid-range product lines that they do not have penetration in right now.
Just like Hyundai bought Kia for an entry line, GE Appliance (under another name, chosen for its American/apple pie sound) would give LG a much wider market in the US.
I have no dog in this fight, I work for Bosch…
Consider “cm” that Chinese “businessmen” can already counterfeit the GE brand if that want and enforcement of laws against such, in China, are not really effective yet .
Why buy what you can steal?
LG should really reconsider this notion of buying the GE brand; I think they can do better on their own.
“American companies are valued at higher P/E Ratios than Korean companies, so when a Korean company buys an American company they pay top dollar, and when US companies buy a Korean company, they buy it on the cheap.”
The latter group, in doing so, also get crucified by the local press, and in certain cases, find themselves targeted by the prosecution!
# 15,
It’s called the Korean Discount and it’s generally deserved because of primarily two things: An ad hoc management style that’s not understandable by most Western investors and questionable accounting standards. Even if the accounting looks like it follows the books, who knows if there is a phantom debt or phantom assets somewhere in the shadows ready to bite your ass once someone’s financial shoe drops.
My thoughts regarding the deal itself…
If LG was paying me to advise them on this, I’d say pass. The main reason is that GE Appliance gives them nothing that’s additive in the long run. To make money in white goods you need to move upstream. $1,000 washers, $2,000 refrigerators, etc. Leave the $300 washers and $600 refrigerators and their razor thin margins to Haier and Whirlpool Roper. LG’s white products are, on average, higher value then GE white goods. It’s like Daimler buying Chrysler. Didn’t make long term sense and it took the Germans a better part of a decade to figure it out. LG did something similar with their acquisition with Zenith back in 1995. They thought that it could be the brand that could sell higher volume, lower value products. That never happened and it just became a non-performing digital TV technology asset and not much more.
GE Appliance’s sales are $7.2 billion. Analysts think that it will sell for $4 or $8 billion. For a business of this size, if 1x sales is the upper end of the range, then it’s a dog asset. Let the Chinese hang that albatross around their neck. LG should keep the hell away.
# 12 @ Haier logo…
picasaweb.google.com/foongmei/Haier2/photo#5118848506681898610
That’s hot.