Haier is at present making no comment on the possible acquisition bid. Nan Yong from Korea’s LG said that they also are keeping a close eye on GE Appliances. LG has made acquisitions in the U.S appliances market before.
According to Yi Kai Capital, GE Appliances�total revenue last year was $7.2 billion, and this would make an acquisition cost between $5 to 8 billion. Haier’s market value on Hong Kong’s Stock Exchange is only $2.3 billion. However, in the first quarter, profits for GE’s consumer products and industrial departments, including GE Appliances, dropped 34%.
Domestic appliances have not been at the core of GE’s business for a long time and its profits have been declining. Whether the appliance arm will actually be sold remains to be seen, as it still earns between $6-7 billion a year. It can also remain a separate department if it is not sold.
Analysts believe that it is possible for Haier to get help from state-owned banks, but it is also possible that it will follow steps of China National Offshore Oil Corp and Hua Wei and seek private funds.
It is reported that two American investment banks are providing consulting services to Haier. This acquisition would pose a big challenge for Haier, a company whose annual profit is between 1 to 2 billion RMB. Analysts say it may be possible for Haier to seek financing from the Black Stone Group and Bain. When Haier was preparing for its failed acquisition of Maytag in 2006, the two firms were then in cooperation with Haier and came through with $1 billion.
A bridge loan is probably the most effective way for Haier to raise funds, but that would be a short-term loan, usually 1 year or less, and would come at a high rate of interest. If Haier made the acquisition, its cash flow in a year’s time would face problems.
For Haier to achieve its global goals acquisition is probably the only way to go. Luo Qingqi, an expert in the appliance market and a board member of the Pully Brand Technology Consulting Company, says if it succeeds in this acquisition, the international white goods market will change. "GE mainly targets high-end consumers, and enjoys a good reputation in the U.S market." From either regional distribution or targeting of consumers, GE and Haier would complement each other.
Haier’s high-end appliances produced in the US have not caught on with American consumers and many have been shipped back to China.
Luo Qingqi believes the biggest benefits for Haier in acquiring GE Appliances would lie in the opportunity it would provide to venture into the U.S market. The factories Haier has already invested in are still in early stages. Its situation will in time improve by itself, but the process will be long and it would be worthwhile for Haier to make the leap at $4-8 billion.
But Luo is skeptical about Haier’s possible acquisition attempt. He believes that its success would depend not on capital but on the whims of the US government and industrial circle. US trade protectionism is gaining power and it is possible that they will not tolerate the expansion of Chinese industrial companies into US markets.
He believes that even if Haier does bid, it might lose out as it did in the Maytag bid two years ago, and that a Korean company such as Samsung or LG is more likely to succeed.
Haier, though, having learned from its earlier failure, will certainly be better prepared than before. In a recent reorganization, a management team strong in finance has replaced one rife with engineers. Deputy director and CFO Tan Lixia is on the board now, and "acquisition expert" Ming Guozhen has been appointed deputy manager.
GE announced its first quarter profit had dropped 12%, totaling $4.36 billion, a fall of 44 cents per share. Soon it said it would sell or separate its domestic appliances division, and the buying price is estimated to be between $4 to 8 billion.
It is reported that GE has contacted Midia, another Chinese white goods giant, but Midea lacked any interest. In fact, although news has it that Haier, Sumsung and LG will take part in the acquisition, none has confirmed interest.
GE CEO Jeffrey Immelt, who last week told investors the Fairfield, Connecticut-based company is also "seriously considering" a spinoff, named Mexico's Controladora Mabe SA, Sweden's Electrolux AB and Turkey's Arcelik AS as other potential suitors. The unit may draw bids of $3 billion to $8 billion, according to analysts at Citigroup Inc. and Goldman Sachs Group Inc.
"The players become very obvious," Immelt said during a breakfast meeting with businessmen in Seoul today. "It's Haier in China, LG in Korea and so on. Of course, LG is one of the leading candidates."
Videocon, the biggest consumer electronic appliance producer, also said it is considering the feasibility of a bid for GE's appliances division.
Kazuo Furukawa, director of Hitachi, has said that they are not interested in buying GE’s white goods business.
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