Haier has secured a pricey entree into American kitchens. GE is offloading one of the top US appliance makers to the Chinese white-goods giant. Snatching these appliances is a seminal moment, roughly akin to Lenovo buying IBM's PC business a decade ago. Shame the $5.4 billion price tag looks overheated.
The deal is a bold step for Qingdao Haier: the Shanghai-listed company is backed by unlisted parent Haier Group, and by buyout barons KKR. But, its own market value is just $9.2 billion.
Buying one of GE's last consumer-facing businesses brings immediate heft in US cookers, microwaves and dishwashers. Haier gets handy ties to retailers, landlords and builders, and will learn more about consumers in the world's biggest economy. It can also sell GE products into China and gets to use GE's valuable brand for decades.
For all that, GE appears to have got the better end of the bargain. As recently as six weeks ago, it was committed to selling the unit to Electrolux of Sweden for $3.3 billion. But, the sale fell apart in the face of opposition from US antitrust regulators. Now GE will get $2.1 billion more, not to mention a tasty $175 million break fee from the jilted Swedes.
GE reckons the price works out at 10 times trailing Ebitda. That looks rich: the equivalent trading multiple for sector heavyweight Whirlpool is just seven times. Back in late 2014, Electrolux was prepared to pay GE just over seven times that year's Ebitda. Presumably Haier thought it had just one shot at this, with rivals like local nemesis Midea also circling.
Haier says the multiple is more like 8.2 times 2015 Ebitda, "net of certain expected benefits". This appears to be a coy reference to tax losses: there will be few if any cost savings. The buyer also stresses that the unit's Ebitda has soared nearly 50 per cent in two years. A sharp rebound in US demand for consumer durables helps.
Computer maker Lenovo blazed a trail for Chinese buyers when it snapped up IBM's PC unit a decade ago. Haier Group founder Zhang Ruimin could do something similar in white goods. The very full price just makes the recipe somewhat harder to follow.
The deal is a bold step for Qingdao Haier: the Shanghai-listed company is backed by unlisted parent Haier Group, and by buyout barons KKR. But, its own market value is just $9.2 billion.
Buying one of GE's last consumer-facing businesses brings immediate heft in US cookers, microwaves and dishwashers. Haier gets handy ties to retailers, landlords and builders, and will learn more about consumers in the world's biggest economy. It can also sell GE products into China and gets to use GE's valuable brand for decades.
For all that, GE appears to have got the better end of the bargain. As recently as six weeks ago, it was committed to selling the unit to Electrolux of Sweden for $3.3 billion. But, the sale fell apart in the face of opposition from US antitrust regulators. Now GE will get $2.1 billion more, not to mention a tasty $175 million break fee from the jilted Swedes.
GE reckons the price works out at 10 times trailing Ebitda. That looks rich: the equivalent trading multiple for sector heavyweight Whirlpool is just seven times. Back in late 2014, Electrolux was prepared to pay GE just over seven times that year's Ebitda. Presumably Haier thought it had just one shot at this, with rivals like local nemesis Midea also circling.
Haier says the multiple is more like 8.2 times 2015 Ebitda, "net of certain expected benefits". This appears to be a coy reference to tax losses: there will be few if any cost savings. The buyer also stresses that the unit's Ebitda has soared nearly 50 per cent in two years. A sharp rebound in US demand for consumer durables helps.
Computer maker Lenovo blazed a trail for Chinese buyers when it snapped up IBM's PC unit a decade ago. Haier Group founder Zhang Ruimin could do something similar in white goods. The very full price just makes the recipe somewhat harder to follow.