GE may sell off distribution unit

Wednesday, November 16, 2005

2005-11-16 Beijing Time
GENERAL Electric Co plans to seek buyers for an electrical-parts distribution unit as it exits slow-growing businesses, people familiar with the matter said.

A sale of GE Supply may raise as much as US$700 million, said the sources, who declined to be identified because no announcement has been made. The unit generates about US$70 million in earnings before interest, tax, depreciation and amortization, they said.

GE Chief Executive Officer Jeffrey Immelt has sold dozens of businesses since he took over in 2001 to focus on more profitable units such as medical-imaging equipment. GE Supply, formed in 1929 and based in Shelton in the US state of Connecticut, sells electrical products such as light fixtures from GE and more than 200 other manufacturers to customers including commercial-building contractors.

'GE is concentrating on higher-tech businesses, and this is more of a distribution business,' said Mark Demos, an analyst at Fifth Third Asset Management in Cincinnati, Ohio, which owns about 13 million shares in General Electric, the world's biggest company by market value. 'There's not a lot of value GE can add to that business.'

A spokeswoman for GE declined to comment.

Companies that compete with GE Supply or buyout firms that value steady cash flow may be interested in buying the business, said Fifth Third's Demos.

Clayton, Dubilier & Rice Inc, a New York-based buyout firm, and Wesco International Inc, a competitor of GE Supply, have bought electrical-distribution assets this year.

GE Supply has more than 150 locations in the United States, Puerto Rico, Mexico and elsewhere.

Immelt may sell GE units involved in the manufacturing of appliances, plastics and equipment leasing and use the proceeds to buy back shares, wrote Nicholas Heymann, an analyst at New York-based Prudential Equity Group, in a September 14 note to clients.

GE plans to save as much as US$1.2 billion in 2006 by combining operations into six divisions from 11. Immelt has raised more than US$25 billion selling satellite, electric motor, industrial diamond and other businesses. The company on September 21 sold about half of its 52 percent stake in insurer Genworth Financial Inc for US$2.36 billion and plans to sell the rest by the end of 2006.

Consolidation in the electrical parts distribution industry has picked up this year, with Paris-based Rexel SA's acquisition by a Clayton Dubilier-led group for about US$3.5 billion and Wesco's purchase of Carlton-Bates Co for US$250 million. Until 1994, Pittsburgh-based Wesco was part of GE rival Westinghouse Electric Corp.

GE Supply's biggest competitors are closely held Graybar Electric Co, Wesco and Anixter International Inc."