Haier products get a thumbs up from a client at the 117th Canton Fair held in Guangzhou, capital of south China's Guangdong Province, from April to May 2015 (XINHUA)

General Electric (GE)--the American behemoth of refrigerators, washing machines and other home goods manufacturing--has agreed to sell its appliance unit to its Chinese counterpart Haier for $5.4 billion, according to an announcement by the two companies. The deal is the third largest acquisition of a U.S. company by Chinese investors.

Although unusual, the agreement "establishes a model for cross-border investment and cooperation between China and the United States," according to Haier officials. The Qingdao-based company will have the right to use the GE brand for its appliances for the next 40 years. In addition, the two will partner worldwide to expand their reach in healthcare, advanced manufacturing and the industrial sectors.

"Haier is committed to investing in the United States. Furthermore, Haier and GE will explore opportunities for joint collaboration and, in doing so, establish a type of new alliance, with comprehensive strategic cooperation between two world-class enterprises, which reflects our common understanding of the opportunities brought by the Internet era," Haier Chairman and CEO Zhang Ruimin said in a statement.

The sale also enables GE to focus on the industrial sector such as its manufacture of jet engines and power turbines. The deal also prevents the loss of some 6,000 jobs at GE's plant in Louisville, Kentucky.

"Haier has a good track record of acquisitions and of managing brands," GE Chairman and CEO Jeff Immelt said in a press release. "Haier has a stated focus to grow in the United States, build their manufacturing presence here, and to invest further in the business."

In addition, Immelt said, GE sees the deal as an opportunity to "work together to build the GE brand in China."

Haier also plans to invest $72 million to expand its refrigerator plant in Camden, South Carolina. The company has unsuccessfully courted other appliance manufacturers throughout the past 20 years, including a bid for Maytag in 2004. Haier holds a 1.1-percent market stake in the United States.

GE said the $5.4-billion deal values the appliance business at 10 times the past year in earnings before interest, taxes, depreciation and amortization. The deal includes the 48.4 percent stake that GE Appliances owns in Mabe, a Mexican appliances company.

"This is the chance of a lifetime for Haier to become big outside China and specifically in the United States, hence they are willing to pay this very high price tag," Kepler Cheuvreux analyst Johan Eliason told Reuters.

The acquisition is reminiscent of Chinese computer manufacturer Lenovo's purchase of IBM's PC business a decade ago for $1.25 billion. Despite initial skepticism and surprise that such a well-known American brand would be acquired by a Chinese company, the arrangement has been a boon to Lenovo since it gave it an entry into international markets.

GE had been trying to unload its appliances division for months, including a $3.3-billion agreement last December with Swedish giant Electrolux. However, opposition from American antitrust regulators sunk the deal. This latest accord is unlikely to raise similar concerns due to Haier's low market share, said analysts. While Haier is the largest retailer of major appliances around the world--dominating 10 percent of the global market--it remains relatively unknown in the United States.

"The GE deal would give Haier a stronger brand," James Roy, associate principal at the China Market Research Group in Shanghai, said. "The company is a big player, but it has struggled in brand positioning, particularly in the United States.

With the acquisition of the GE brand, Haier has the opportunity to elevate its own reputation for quality yet affordable goods, said Roy.

In the United States, Haier is mostly known for its line of dorm-sized refrigerators and cheap televisions--if Americans are aware of the brand at all. According to a survey by Millward Brown, HD Trade Services and JWTIntelligence, Haier was the second most recognized Chinese brand among American consumers in 2013, following Lenovo. The number of respondents who were able to name Haier as a brand with which they were most familiar, however was less than 1 percent. This is why Haier is expected to use its right to the GE brand as it expands internationally.

Haier has always been known as an unusual company with strong leadership. CEO Zhang made headlines in 1984 when he was brought in to turn around the company--then a small, state-owned fridge factory. After learning that 20 percent of the company's fridges were defective, he used a sledgehammer to smash the faulty appliances in the factory yard--ushering in a new focus on higher standards. The hammer is now enshrined in Haier's Qingdao headquarters.

As the company grew, Haier also became one of the first Chinese brands to focus on customer service, setting up call centers and after-sales services. The company has long prided itself on its ability to adapt. When Haier discovered that Chinese potato farmers were using washing machines to clean their crops, they redesigned their appliances to better suit those customers.

The company has also insisted on retaining its Chinese name in its expansion into the international market, coining an advertising slogan "Haier and Higher." By 2014, Haier was listed as the world's biggest home appliances manufacturer.

The company is focused on developing "smart appliances" such as heaters you can turn on with your mobile phone, and washing machines that adapt automatically according to the clothing load.

"[Haier] has enormous scale that they can bring to our business" in areas such as research and development, said GE Appliances CEO Chip Blankenship at a press conference.

Haier

Haier Group is the world's leading home appliance provider, with global sales amounting to 188.7 billion yuan ($29 billion) and profits of 18 billion yuan ($2.77 billion) in 2015. Its mission is to create innovative home appliances that anticipate the fast-changing needs of consumers all around the world.

Haier has been named the number one global home appliance brand every year for the last six years by Euromonitor International, a world leader in strategy research for consumer markets, and in 2012 the Boston Consulting Group named Haier as one of the 10 most innovative companies in the world as well as the most innovative company in the consumer and retail category.

Its global headquarters are based in the coastal city of Qingdao, east China's Shandong Province, and it also has regional headquarters in both Paris and New York to serve its clients in Europe and America. Haier also has five R&D centers, 66 trading companies and 21 industrial parks worldwide.

Qingdao Haier Co. Ltd., a subsidiary of the Haier Group as listed on the Shanghai Stock Exchange, will acquire the GE Appliances business. Focusing on driving innovation in smart home technologies, Qingdao Haier acquired all the overseas operations of the Haier Group in June 2015, as part of the expansion strategy of Haier's global business.

(Source: Haier Group)

The author is a contributing writer to Beijing Review , living in New York City 

Copyedited by Bryan Michael Galvan

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