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.

Last July I met with General Electric Company (NYSE: GE) CFO Keith Sherin to discuss GE's performance and prospects. After an extensive analysis, I concluded that GE was not grossly undervalued in the stock market relative to my estimate of the breakup value of its component parts. Seven months later, I've reached a different conclusion -- if one were to break up GE now, its pieces would fetch less than its current market value.

In the last seven months, GE's market capitalization has fallen 15% from $399 billion to $339 billion. But GE made more money than I thought it would. When I estimated how much profit its business units would earn for 2007 in July, I had half a year's segment profit and I guessed that the year's total would be $21.6 billion. But the actual 2007 segment profit total was $24.1 billion -- which I calculated by assuming each segment paid a 17% tax rate on its profit.

Meanwhile the market has decided to assign lower values to GE's various businesses. I calculated that the weighted average Price/Earnings (PE) ratio of GE's business last July was 19.92 and now it's down to 17.62. This leads me to a range of breakup values for GE which are between 11.1% and 1.5% less below GE's current market capitalization. At the high end, I estimated that GE's businesses could be worth $334 billion and at the low end -- $301.3 billion. How did I get there?