Should GE Sell or Partner Appliance Unit?

GE announced last week that it is considering selling, spinning off or partnering its appliance unit. My first thought went to why they would want to dump it at all. GE has a long history of dumping underperformers (units and people). In December they put their finance unit (or at least some of the individual divisions) up for sale, and many have called on them to sell NBC Universal. NBC makes some sense as ad revenue is declining, and, frankly, the network has had better success with its cable programming than its scripted broadcast offerings.

That leaves three major drivers for GE: medical devices and equipment, aircraft, and alternative energy such as solar and wind. Solar and wind power is a growing industry, deserving of additional investment. Medical devices and equipment is somewhat of a reach and soon may start to lag. While GE innovation in this area is top-notch, the associated rise in health care costs will push down sales over the next few years. A similar situation exists for aircraft as the increased costs have forced airlines to reduce their capacity.

The other issue is what happens to the brand itself. If GE sells or spins off the unit, the ultimate value hinges on whether the GE name goes with it. Many suitors may want the brand for continuity, even though IBM and Lenovo were successful in the change. In that case, however, Lenovo was already producing the computers for IBM, so it was little more than a name change. GE isn’t in the same boat.

Allowing the GE brand name to accompany the sale exposes GE to a diluted value in the name as well as the risk of a negative association with the ultimate owner.

A partnership, in my humble opinion makes much more sense. Part of the reasoning behind the underperformance is because GE Appliances have not penetrated the international market, making them reliant on home sales, particularly new homes, in the United States. The housing market will rebound (new housing starts rose in last month, thanks mostly to apartment construction), and a strong international production partnership will give them the market exposure in other countries they so desperately desire. Then, in time, if they still wish to sell the division, they have ready-made partner (assuming the relationship goes well) and could command a higher price.

Shedding poor performers and investing in higher ones is a smart business move. But it should be done when other efforts to increase performance fall short or the organization decides it must go in a completely different direction.

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