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GE May Spin Appliances Unit, Not Sell It......

By: Todd Sullivan Thursday, May 22, 2008 12:39 PM

Sectors: Conglomerate , Consumer Staples
Symbols: GE, KFT, MO

It is apparent that the potential bids GE (GE) has received for its appliance unit are far from what it expected..

With sales of $7.2 billion last year, GE had hoped to get $6 to $8 billion for the unit. The fact they have now decided to consider a spin, an option not originally specified, can only mean conversations with potential buyers have resulted in prices much below that.

In an spin scenario, if it is a tax free exchange like the ones Altria (MO) has done with Kraft (KFT) and Phillip Morris International (PM), GE receives nothing in the exchange. It is shareholders who receive proceeds. They could opt to retain a percentage of the business and profit from its future growth that way if they opted. Perhaps they would spin 50% of it and retain the other half to sell at a later date when the market for it improves. This option may just be a move to pacify shareholders who have been frustrated for the better part of the decade.

No matter what they do, it is clear this is not unfolding as they expected. Immelt is out stumping the "brand" as if to remind potential buyers the value of having GE on an appliance. I am not sure this is in doubt in the appliance world.

The problem is buyers know he has to do something because he has already stuck his neck out and had it swiped at. He is also trying to sell into a very weak market. Add those two together and you have a seller who has a problem.

Disclosure ("none" means no position):