GE has decided to back out of a deal to sell its appliance business to the Swedish appliance company Electrolux rather than face the US Justice Department who wish to block the sale due to its apparent antitrust nature.
The $3.3 billion deal was first challenged by Justice this past summer when they stated in court that the forging of the two companies into one would lead to “less competition, higher prices and fewer options for millions of Americans.”
GE’s move to terminate the sale should entitle them to receive a $175 million break-up fee, a term they parties agreed on as an insurance in case the deal fell apart.
No verdict was yet reached by the Washington court considering the status of the sale. GE nevertheless exercised its right to terminate the agreement after 15 months of talks. The collapse of the deal is disappointing to Electrolux. The Swedish white goods company was hoping to make themselves into an appliance company giant able to compete with the likes of Whirlpool Corp and equivalent companies in Asia.
“We are disappointed but we are certainly not defeated,” Elextrolux Chief Executive Keith McLoughlin said.
Jack Truong, Head of the North American major appliance division of Electrolux, and a vice president, resigned on Wednesday after the Swedish company released a profit warning for the unit.
According to the company, data from the first quarter of 2015 demonstrates that profits would be significantly lower than what had been predicted for their refrigeration and freezer-manufacturing business. They said that the reduced profits are due to new US energy-efficiency requirements in addition to a lagging production increase in its Memphis, Tennessee factory, where ovens are produced.
The company added that it will most likely need almost the rest of 2015 to return to its past profitability level as well as improve efficiency to profitable levels.
Electrolux’s troubles in North America started last year during the third quarter last year. Despite the company developing a plan for improvement, Electrolux has still suffered from slow growth. They are hopeful that things at the company will begin to show improvement during the second quarter of this year.
“If you look at how the company has communicated this, it is clear that they have not had full insight into the developments in North America,” said Mr. Rinta of the Swedish bank Handelsbanken.