Electrolux and GE Appliances - For the exclusive use of B...

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TB0441 Copyright © 2016 Thunderbird School of Global Management, a unit of the Arizona State University Knowledge Enterprise. This case was written by Professor Michael H. Moffett for the sole purpose of providing material for class discussion, with research assistance from Alex Ganevsky and Anadi Gakhar, and the helpful comments of Brad Hoffa, Nicole Meachem, and Professor Andrew Inkpen. It is not intended to illustrate either effective or ineffective handling of a managerial situation. Any reproduction, in any form, of the material in this case is prohibited unless permission is obtained from the copyright holder. Michael H. Moffett Electrolux and GE Appliances GE math. Consider: Let’s assume GE mispriced Appliances when it tried to sell it six years ago (a safe assumption, since it didn’t sell). So, let’s say the Appliances business was worth not $8 billion back then, but rather just half that—$4 billion. Add the $1 billion spent spiffing up the business, and divide the resulting $5 billion value into the best-case price GE is expected to get for the unit today: $2.5 billion. That works out to a 50% loss for GE shareholders. “Is General Electric Company About to Make Its Biggest Mistake Ever? ” The Motley Fool, 19 July 2014. Electrolux’s valuation team was working out of the company’s corporate headquarters in Stockholm, Sweden. Its task was to complete both a valuation and suggested final offer for GE’s appliance unit by mid-August 2014, which meant that the summer holiday sailing on the archipelago would be lost. The team’s challenge was in capturing the value of GE’s appliance unit, both as a stand-alone business and as combined with Electrolux. GE would know that Electrolux would see added value in it—so-called synergies —and would be building that differential into its asking price. But the value of GE Appliances (GEA) had also fallen over time, as demonstrated by GE’s own efforts at selling the business repeatedly. There were two questions to answer: (1) what was GE Appliances worth; and (2) what should Electrolux offer?

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