"LG will clean up with or withour GE"Original Article from Business Week
on May 29th by Moon, BusinessWeek's Seoul bureau chief.
Summary
Since General Electric revealed plans to put its appliances business on the block May 16, LG has been regarded as the most possible potential buyer. GE CEO Jeffrey Immelt visited Seoul to discuss with LG executives. 10 years ago, LG was known as the maker of cheap microwave ovens and toasters but now LG has emerged as the world’s No.3 manufacturer of white goods after whirlpool and Electrolux. LG is also doing very good job in mobile phones. Besides of LG, GE CEO Immelt is considering Haier Group, Controladora Mabe, Arcelik and Electrolux as a potential buyer of GE Appliances. 
For LG, GE is very attractive because it has renowned reputation in US while LG want to increase its market share and expand to the high profit margin appliances industry. However, current price for GE will be critical for LG to decide whether to buy GE Appliances or not.
My opinion
I don’t think LG has clear vision about merging GE Appliances. As a matter of fact, GE has renowned brand power in North America and it could be very attractive factor for the company that is expanding its business in North America. However, the thing is that LG can make synergy effect with merging GE Appliances.
As the professor Lee mentioned, Samsung’s M&A with Corning is the one of the best precedent of win-win M&A. Samsung has bright blueprint how to maximize their profit margin sucking up the technology that Corning had. At that moment, Corning was decreasing but Samsung found that the optical technologies would be prime components manufacturing high end display. Therefore, both Samsung and Corning realize win-win situation.
Based on research I did about M&A(Vein & Company report about M&”A), there are 4 things to avoid. First thing to avoid is unreliable investment logic. The buyer must be able to indicate why they should buy the company. Second, the buyer company must decide proper price for the company by thoroughly analyzing external and internal environment. Third, it should take precaution against the overestimated synergy effect. When investors estimate the company’s value, they look at synergy value rather than its actual value. But, in current M&A, the merging price is being formed 16~20 times higher based on EV/EBITDA. Lastly, spending more than how much company can afford is also put the company in great danger. Many companies depend on loan when they are doing M&A. If the purchased company doesn’t make expected profit, sometimes they must sell the new company with the much lower price that they paid.
PMI(Post-merger integration) is also carefully pre-planned. They should think about how the both companies’ culture function together and how to capture the core man of ability after M&A.
I hope LG carefully analyze all of the factor that is related to M&A and successfully rebirth as the world top appliances companies.
For LG, GE is very attractive because it has renowned reputation in US while LG want to increase its market share and expand to the high profit margin appliances industry. However, current price for GE will be critical for LG to decide whether to buy GE Appliances or not.
My opinion
I don’t think LG has clear vision about merging GE Appliances. As a matter of fact, GE has renowned brand power in North America and it could be very attractive factor for the company that is expanding its business in North America. However, the thing is that LG can make synergy effect with merging GE Appliances.
As the professor Lee mentioned, Samsung’s M&A with Corning is the one of the best precedent of win-win M&A. Samsung has bright blueprint how to maximize their profit margin sucking up the technology that Corning had. At that moment, Corning was decreasing but Samsung found that the optical technologies would be prime components manufacturing high end display. Therefore, both Samsung and Corning realize win-win situation.
Based on research I did about M&A(Vein & Company report about M&”A), there are 4 things to avoid. First thing to avoid is unreliable investment logic. The buyer must be able to indicate why they should buy the company. Second, the buyer company must decide proper price for the company by thoroughly analyzing external and internal environment. Third, it should take precaution against the overestimated synergy effect. When investors estimate the company’s value, they look at synergy value rather than its actual value. But, in current M&A, the merging price is being formed 16~20 times higher based on EV/EBITDA. Lastly, spending more than how much company can afford is also put the company in great danger. Many companies depend on loan when they are doing M&A. If the purchased company doesn’t make expected profit, sometimes they must sell the new company with the much lower price that they paid.PMI(Post-merger integration) is also carefully pre-planned. They should think about how the both companies’ culture function together and how to capture the core man of ability after M&A.
I hope LG carefully analyze all of the factor that is related to M&A and successfully rebirth as the world top appliances companies.
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