GE Seeks Buyer for Appliance Unit: Lampert Interested?

Lampert has a $4 billion credit line and that is unused and about $1 billion in cash at Sears Holdings (SHLD). While an outright purchase may not be in the cards, Lampert could easily take a large piece of the unit and turn Sears, already the nations largest seller of appliances, into its largest producer also.

The GE (GE) unit is expected to garner between $5 and $8 billion. GE is currently the second-largest producer of appliances sold, after Whirlpool (WHR), which bought Maytag in 2006 for $1.7 billion.

According to the Journal:

GE has hired Goldman Sachs Group Inc. to run an auction for the appliances unit. It's unclear who might be interested in bidding this early in the process. But possible buyers for the division include appliance makers BSH Bosch [BCSHF.PK] & Siemens (SI) Hausgeräte GmbH of Germany and Haier Group of China, bankers said. Private-equity firms and GE's Mexican partner, Controladora Mabe SA, could also be interested, they said.

Why not buy it all? Technically he could, but Lampert is not one to leverage up a balance sheet and buying the whole company would do just that. The timing of it, with the current retail environment would make things a bit tight. It has to be tempting though... With the current logical push into brands, adding the GE line to the stable would be very exciting. Let's also not forget that the price it will sell at today is far less than what it would have sold for even a year ago.

It would also give the company tremendous bargaining power when dealing with retailers like Home Depot (HD) and Lowe's (LOW). Antitrust concerns ought not be an issue considering the Whirlpool and Maytag merger was approved. There is still plenty of international competition, including the above named potential suitors.

We must assume Whirlpool as a bidder is out simply because the deal would never get by regulators. Private equity may not be there simply because of the debt markets. That does give the advantage to strategic buyers, of which Sears is one. That also means fewer bids at the auction and because of it, a lower price.

This may be the perfect time for Lampert. Perhaps his hedge funds ESL or RBS Partners could take a stake with Sears? That way Lampert has total control of the unit and Sears does not take on too much debt. Then, as the retail environment improves, Sears could buy the rest from him down the road.

Just a thought....

Disclosure: Long SHLD

Comments

[Norman Lepoff, M.D.]

I think it is a good idea for GE to sell the appliance unit.

[User 118677]

I hate the CEO that buys at the top and sells at the bottom. I don't quite see Imelts logic.

[businesspower]

GE's logic is simple: they need cash now to improve their balance sheet, while being able aggressively buy their own stock back - the strategy to improve their stock performance (about break-even over the last 4+ years).

BTW, if ESL/Lampert would consider GE's deal, why not then go to the next step and get a creative deal with taking control over HD at the same time?

[LongTerm]

I agree with businesspower regarding GE's Logic. This is not a bad move for GE. The cash from this sale will help with GE's current direction towards improving overall perfomance.

I would have to diverge with the suggestion of taking control of HD. HD's lastest sales figures, store closings, and reduction in store openings would make this too risky a move all at once. I understand that this is where K-Mart was when he aquired them but while the ESL/Lampert cash position may be healthy now, trying to take two huge bites at once may lead to accelerated problems with both his fund and SHLD.

[Searsrepairman]

Does anyone know total revenues of Sears Kenmore brand? I can't find any breakdown in the 10k filing. It would be great to know to help define value of Kenmore business on a P/S comp with the GE appliance unit.

[Jim Not C]

And that will be another stock down 50% in a year.