U.S. sues to stop Sweden’s Electrolux from acquiring GE's appliance business

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Reuters / July 1, 2015

[in a rare sign of economic wisdom] The United States filed a lawsuit on Wednesday to stop Sweden's Electrolux AB, which owns the Frigidaire, Kenmore and Tappan brands, from buying General Electric Co's appliance business, the Justice Department said in a statement.

It said the $3.3 billion deal would hurt competition, and consumers, by combining two of the three top makers of stoves, cooktops and ovens. Whirlpool Corp, which bought Maytag in 2006, is the third.

Electrolux shares traded in the U.S. (ELUXY.PK) on the OTC Pink market fell 9.3 percent, with more than 40,000 shares exchanged. GE's share price was steady.

GE, which also has the Hotpoint brand and sells almost exclusively in the United States, said in a statement that its goal remained to close the deal in 2015. "Electrolux and GE intend to vigorously defend the proposed acquisition," the company said in a statement.

In its complaint, the Justice Department said that Whirlpool, GE and Electrolux had 90 percent of the U.S. market for stoves and ovens.

Leslie Overton, a deputy assistant attorney general at the Justice Department's Antitrust Division, said the Electrolux deal would lead to higher prices for consumers.

"This lawsuit also seeks to prevent a duopoly in the sale of these major cooking appliances to builders and other commercial purchasers," she added.

But Electrolux disagreed. Its antitrust attorney Joe Sims argued that LG, Samsung and others were moving into the market to challenge the Big Three.

"There is absolutely no barrier of any kind to any other manufacturer participating," he said.

Sims said that the company and Justice Department had been in settlement talks.

"We are rational and are therefore more than happy to come to a reasonable settlement if the DOJ (Justice Department) is. If not we're just going to have to win in court," said Sims, who said the deal could close by the end of the year.

GE’s move to sell off its appliances business is part of a shift the U.S. conglomerate is making to sharpen its focus on manufacturing big-ticket industrial products such as jet engines and power turbines. To that end, GE in April announced it would exit $200 billion worth of finance assets, while it is seeking to acquire the power equipment unit of France’s Alstom.

European regulators have expressed concerns that GE’s purchase of Alstom’s power unit would leave just two gas turbine companies in Europe, with GE only competing with Germany’s Siemens. GE has been working on concessions to save the planned 12.4 billion euro ($13.7 billion) purchase, which would be the biggest in the U.S. conglomerate’s history.

GE on Tuesday warned that the appliances sale would not close in the second quarter because of an ongoing regulatory review, and expected an after-tax gain of roughly 5 cents to 7 cents per share should the deal close. GE is expected to earn $1.29 per share this year, according to Thomson Reuters I/B/E/S.

The case at the U.S. District Court for the District of Columbia is United States v AB Electrolux and General Electric Co. It is No. 15-1039.

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Once upon a time, America led the world in innovation and industrial might. But as a result of government casting a blind eye to the fast declining state of American industry, a significant portion of U.S. industry is now under foreign ownership.

In order for a major country like the United States to regain its position as a world leader, we must have a solid economy, which inherently requires a solid industrial foundation. Today, we no longer have that. Much has been allowed to go abroad, while the meager remnants remaining is being sold to foreign companies.

- Germany's ZF has acquired TRW
- Italy's Fiat owns Chrysler, Dodge and Jeep
- China's Wanxiang has acquired over 20 U.S. businesses including battery maker A123, Dana’s coupled-products business, Neapco and D&R Technology.
- Germany's Daimler acquired Freightliner, Western Star, Detroit Diesel and Thomas Built Buses
- Sweden's Volvo acquired White, Autocar, GMC heavy truck and Mack Trucks

- Germany’s Knorr-Bremse owns Bendix Commercial Vehicle Systems

- Sweden’s Haldex acquired Anchorlok and the Neway suspension control valve business

- Germany’s SAF acquired Neway air suspensions, and 5th wheel makers Holland and Simplex

- Prestolite Electric, which includes the Leece-Neville brand, was acquired by Zhongshan, China-based Broad Ocean Motor Company and Beijing-based Ophoenix Capital.

- Nexteer Automotive aka GM Global Steering Holdings LLC (formerly Delphi Steering and GM’s Saginaw Steering Division) was acquired by Chinese government-owned Pacific Century Motors
- Korea's Doosan owns Bobcat
- Aircraft and industrial engine maker Teledyne Continental Motors was acquired by Chinese government aircraft maker AVIC

- Canada's Bombardier acquired Learjet Corporation
- Mexico's KUO Group acquired Borg-Warner and Spicer transmissions
- Italy's Fiat thru subsidiary CNH Global owns Case-IH and New Holland
- Sweden's Volvo acquired the road construction equipment division of Ingersoll Rand
- Japan's Bridgestone owns Firestone
- France's Michelin owns Uniroyal and BF Goodrich
- China’s Beijing West Industries acquired Delphi’s brake and suspension divisions
- Netherlands-based Mittal Steel acquired (asset holder of Bethlehem Steel, LTV, Weirton Steel, Georgetown Steel and US Steel)
- Mexico's Metalsa S.A. acquired 10 Dana plants that produce structural components for chassis and body structures in light and commercial vehicles
- Germany's Siemens acquired Houston-based Dresser-Rand
- China's Shuanghui owns Smithfield Foods
- Belgium's InBev owns Anheuser-Busch
- South African Breweries (SAB) acquired Miller Brewing
- Germany's Merck KGaA acquired St. Louis-based Sigma-Aldrich
- Switzerland's Nestle owns Gerber baby foods and Purina
- Sweden's Electrolux owns the Frigidaire, Kenmore and Tappan brands
- South Korea's LG owns Zenith

- Netherlands-based Philips acquired Magnavox, Philco and Sylvania
- China's Lenovo acquired IBM's personal computing division
- Japan's Seven & I Holdings owns 7-Eleven
- The UK's InterContinental Hotels Groups owns the Holiday Inn and Crowne Plaza hotel chains, and Candlewood Suites
- China's Wanda Group owns the AMC cinema chain
- The Venezuelan government owns Citgo
- Mexico's Bimbo Group acquired Sara Lee's bakery business and the following brands: Arnold, Ball Park, Boboli, Brownberry, Cinnabon Bread, EarthGrains, Entenmann’s, Francisco, Freihofer’s, Marinela, Milton’s Bread, Mrs Bairds, Oroweat, Roman Meal, Sara Lee, Stroehmann, Sun-Maid Bread, Thomas’ and Tia Rosa.

- The British-Dutch conglomerate Unilever owns Ben & Jerrys, Vaseline, Hellmann’s, Best Foods, Ponds, Good Humor and Breyers
- Germany's Henkel owns Dial soap, Loctite, Orbseal and Bergquist
- Germany's Bayer acquired Miles Laboratories and Cutter Laboratories (including Cutter insect repellent, Alka-Seltzer, One-A-Day, Flintstones vitamins and Bactine), and the consumer care business of Merck & Co. which included the brands Claritin (allergy), Coppertone (sun care), MiraLAX (gastrointestinals), Afrin (cold) and Dr. Scholl’s.

- Bayer CropScience acquired biological company AgraQuest
- Thailand’s Thai Union Frozen Products owns Chicken of the Sea and Orion Seafood International
- South Korea’s Dongwon owns StarKist
- The UK’s Lion Capital owns Bumble Bee Foods

- Giant Carlisle (Martin's Food Markets, Ukrops), Stop & Shop and Giant-Landover supermarkets are owned by Dutch retailer Koninklijke Ahold N.V.

- Food Lion and Hannaford supermarkets are owned by Belgium-based Delhaize Group
- Colombia's Cementos Argos has acquired the cement and ready mix producing assets of Vulcan Materials and LaFarge
- UK-based Tarmac PLC acquired the cement and ready mix producing assets of Stamford, Conn.-based Lone Star Industries (for many years the largest U.S. cement maker)

- Two-wheeled electric people mover Segway has been acquired by China’s Ninebot

The list, sadly, goes on and on.

European companies have spent over $173 billion in 2014 on the acquisition of US businesses. Think about that.

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US hands foreign companies tax advantage

The Financial Times / September 25, 2014

The Obama administration has handed foreign companies an advantage over American rivals because they will not be caught by new rules governing access to offshore cash.

The US this week unveiled proposals to discourage controversial mergers known as “inversions”, which American companies have used in part to gain tax-free access to earnings parked outside the US.

A US Treasury official, referring to measures that make it harder to access offshore cash, told the Financial Times: “Our actions are specifically targeted to inverted companies.” They will not apply to foreign companies that acquire a US business and its cash pile.

Some tax experts questioned why the two groups should be treated differently. “It seems unfair and inappropriate,” said Steve Rosenthal, senior fellow at the Tax Policy Center, a non-partisan think-tank.

US companies have used inversions to establish addresses in countries with low tax rates, enabling them to access offshore cash without triggering US taxes that become payable when overseas earnings are repatriated.

According to Moody’s, the rating agency, US non-financial companies hold about $950bn in overseas cash and liquid investments.

As a result of the measures, a US company’s offshore cash would become cheaper to access if it were acquired by a European rival than if the US company did an inversion.

Stephen Shay, a Harvard Law School professor and former Treasury lawyer, said: “It shouldn’t matter whether the new [corporate] structure comes in the form of a new foreign acquirer or an inverted transaction. The fact is there is attempted avoidance of US tax on the offshore earnings either way.”

Inverting companies have been slammed by President Barack Obama for abandoning the US and eroding its tax base.

On Monday, when Jack Lew, Treasury secretary, unveiled the measures, he praised “genuine” cross-border mergers done for business reasons for “encouraging foreign investment to flow into the United States”.

European companies have spent $173bn so far this year on acquisitions of US businesses, according to Dealogic. The deals have been driven more by a desire for exposure to the faster-growing US market than by the attractions of offshore cash.

The Treasury’s targeted steps were praised by a trade group for foreign businesses in the US, the Organization for International Investment. “They have tried to thread the needle, which was welcome,” said Nancy McLernon, its chief executive.

But Mr Rosenthal, the tax expert, said: “US companies say: “If we invert, why should we be at a competitive disadvantage to a foreign multinational that acquires a US company and is not subject to these inversion rules?’”

Even before Monday’s proposals, inversions did not allow US companies instant tax-free access to their accumulated overseas earnings. They first had to be moved out from under the US tax net using one of several complex techniques.

The Treasury plans to eliminate three of the techniques, but the two most popular – known as “hopscotch loans” and “decontrolling” – will still be available to new foreign-based owners of US subsidiaries.

In previous proposals for broader tax reform, which remain stymied by Congress, the Obama administration signalled a desire to curb tax avoidance on offshore cash by all companies, inverted or not.