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GE to sell its appliance business

Posted May 14th 2008 7:40PM by Peter Cohan
Filed under: General Electric (GE), Goldman Sachs Group (GS)

CNNMoney reports that General Electric Co. (NYSE: GE) is selling its appliance business. Goldman Sachs Group (NYSE: GS) is running the auction for this maker of refrigerators, microwaves and dishwashers and expects to receive between $5 billion and $8 billion for this $7 billion division of GE's $17.7 billion (2007 revenues) Industrial business unit.

I have been advocating that GE shed its ancillary businesses and this is one that makes sense to sell. I have taught several cases on the appliance industry and one of them highlights the many problems that GE's Appliance business suffered from in the 1990s thanks to the growing bargaining power of mass merchandisers, significant competition from Chinese manufacturers, and some internally inflicted wounds.

If GE Appliances was valued at the same Price/Sales ratio as Whirlpool (NYSE: WHR) -- 0.3 -- it would fetch $3.5 billion. The appliance industry average price/sales ratio is 0.7 -- which would yield GE $4.9 billion. So it looks like GE believes its appliance business is worth well more than the average appliance industry competitor. I applaud the idea of selling GE Appliances but the real gem of GE is its infrastructure business which is capitalizing on the growth of developing countries like China and India.

Even if it sells GE Appliances, there many other businesses within GE's portfolio that are masking the stellar performance of GE Infrastructure.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns GE shares and has no financial interest in the other securities mentioned.

Tags: ge appliances, GE commercial, GE healthcare, GE industrial, GE Money, GE NBC un, GeAppliances, GeCommercial, goldman sachs, GoldmanSachs, whirl, whirlpool

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