The DOJ Just Put Electrolux Shares Into a Spin Cycle

December 7, 2015, 11:27 AM UTC
GE Appliances Sold To Electrolux Of Sweden For 3.3 Billion
CHICAGO, IL - SEPTEMBER 08: A GE microwave oven is offered for sale at an appliance store on September 8, 2014 in Chicago, Illinois. Sweden's Electrolux AB, makers of Electrolux and Frigidaire appliances, announced today that it has agreed to purchase General Electric Co's (GE) appliances business for $3.3 billion in cash. (Photo by Scott Olson/Getty Images)
Photograph by Scott Olson — Getty Images

Shares in Sweden’s Electrolux AB slumped more than 10% on Monday after a $3.3 billion deal to buy General Electric’s (GE) appliance business fell through.

Announcing the deal in autumn last year, Electrolux said its biggest-ever acquisition would double its sales in the U.S. and step up the challenge to arch-rival Whirlpool (WHR) in the world’s largest appliance market.

But the Department of Justice said the deal would reduce competition and drive up prices, and asked a federal court in July to stop it from going ahead.

Electrolux, which makes Frigidaire, Kenmore and Tappan appliances, and the DOJ were arguing in court when GE pulled the plug, leaving the Swedish firm’s U.S. strategy in tatters.

“It is a major disappointment for Electrolux,” said Handelsbanken Capital Markets analyst Karri Rinta.

Shares in Electrolux were down 11.9% at 210.5 crowns at 1030 0530 ET, the biggest fall by a European blue-chip stock.

“We’re disappointed but we’re certainly not defeated,” Electrolux CEO Keith McLoughlin told a conference call. “It is a very large, global market that is growing, and we believe that Electrolux is well positioned to participate in that growth.”

McLoughlin said the company would “continue to have a strong, robust M&A (mergers and acquisitions) process”, without elaborating.

The news is also a blow for GE CEO Jeff Immelt, who said only six weeks ago that he expected the deal to close this year, making light of the DOJ’s antitrust concerns.

In 2014, Electrolux made around 33% of its 112 billion Swedish kronor ($13.2 billion) of sales in North America against around 35% in Europe.

The acquisition of GE’s appliance business would have seen Electrolux leapfrog Whirlpool as the world’s biggest appliances maker, strengthening its position in North and South America.

David Hallden at UBS, one of few analysts with a negative view on the GE deal due to the price, said Electrolux should look to grow its existing businesses in a robust U.S. market and a gradually recovering European one.

“I think Electrolux should resist any temptation on acquisitions,” said Hallden, who has a sell recommendation on Electrolux stock and a target price of 205 kronor.

The Swedish company said GE had requested it to pay out a termination fee of $175 million that was part of the transaction agreement.

It said fourth-quarter results would include about 175 million kronor of transaction and integration costs and would be hit by about 225 million kronor of costs arising from a bridge facility intended to finance the deal .