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Haier holds off on bid for GE appliances unit - Print Version - International Herald Tribune

International Herald Tribune

Haier holds off on bid for GE appliances unit
Thursday, October 23, 2008

SHANGHAI: Haier, the largest Chinese maker of home appliances, plans not to bid for General Electric's appliances unit until it sees clear signs of a U.S. market recovery, people with direct knowledge of the matter said.

A bid for GE's appliances business, which the U.S. giant put on the block in May, could be Haier's last opportunity to buy an American household brand, a key part of its ambition to reach global consumers rather than just Chinese ones.

With sales of $7.2 billion last year, the GE unit is worth an estimated $4 billion to $8 billion, analysts have said.

However, after Haier hired the consulting firm McKinsey in August to evaluate a possible GE deal, its executives, including Zhang Ruimin, the chief executive, made up their minds to wait and not bid yet, said the sources, who declined to be named given the sensitivity of the matter.

"We're certainly interested in the GE assets," said one of the sources, a senior Haier executive, "but we just can't see any clear sign of when the U.S. markets, in particular its real estate market, can recover."

"And we don't know where the bottom is," he added. "I guess nobody can really tell."

In a McKinsey report submitted to top Haier management, the consultants suggested that Haier should bid for the GE appliance business for several reasons, including the potential of the U.S. consumer market, the sources said.

But Haier managers decided that the sharp downturn in U.S. property sales and consumer confidence would batter the market for GE's big-ticket home appliances.

A Haier spokesman declined to comment. No formal bids have been announced yet, and the plans of the other possible bidders could not be immediately ascertained.

In May, GE's chief executive, Jeff Immelt, named companies including Haier, LG Electronics of South Korea and Arcelik of Turkey as possible bidders for the second-largest U.S. appliance maker, after Whirlpool.

Fred Crawford, the chief executive of AlixPartners, a corporate turnaround firm based in New York, suggested that Asian companies like Haier should sit on their hands for at least six months in the hope of getting better deals.

"My advice in the short term is to be patient," he said, "because the buying opportunities in six months will be better than they are now in terms of valuation." He added that "this will be a wonderful opportunity" to bring the Haier brand to U.S. stores, something the company has already begun to do "quite successfully from what I can see."

Haier is not the only would-be buyer biding its time on a U.S. deal. Samsung Electronics, the world's No.1 memory chip maker, said Wednesday it was dropping a bid for SanDisk because of that company's poor earnings and uncertain outlook.

A source who worked with Haier executives to evaluate the potential GE deal said the other concern for Haier was how to pay for the GE unit, as Haier would rather not borrow from commercial banks.

Haier Group is unlisted, but controls two listed units: Shanghai-listed Qingdao Haier Refrigerator and Hong Kong-listed Haier Electronics Group.

The most likely option for financing a bid is to team up with private equity investors like Bain Capital or Blackstone, although agreement on terms and conditions for a joint bid may be difficult in the short term, sources said.

Haier, a state-controlled company, also sought informal advice from the Chinese Ministry of Commerce, the sources said, which replied that it should make the decision on a bid at its own risk. "I think we did good homework and now we just want to wait and see," said the Haier source.

Haier holds off on bid for GE appliances unit - Print Version - International Herald Tribune

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