July 2, 2015 / 7:59 PM / 4 years ago

Regulatory rebuffs could force GE to seek other deals, more buybacks

(Reuters) - U.S. and European regulatory resistance could force General Electric Co (GE.N) to seek another buyer for its appliances business and different paths to expand its industrial operations in an ongoing strategic overhaul.

A General Electric appliance in seen in a Sears store in Schaumburg, Illinois, September 8, 2014. REUTERS/Jim Young

Chief Executive Jeff Immelt wants further focus on manufacturing of higher-margin products such as jet engines and power-generating turbines, and to move away from riskier finance earnings.

But two of his moves are in doubt over concerns they will hurt competition.

GE met with European regulators on Thursday to allay worries its 12.4 billion euro ($13.7 billion) acquisition of Alstom’s (ALSO.PA) power equipment business would leave Europe with two gas turbine players.

On Wednesday, the U.S. government sued to block GE’s $3.3 billion appliances sale to Sweden’s Electrolux (ELUXb.ST), saying it would combine two of the three top players.

GE has expressed confidence in the transactions, although its timing to complete them has slipped.

But investors are starting to look at alternatives Immelt could pursue if the Electrolux and Alstom deals are stymied.

“Alstom is in that core of what they’re trying to become,” said Peter Jankovskis, co-chief investment officer at Oakbrook Investments, which owns 1.7 million GE shares. “If you can’t lock up Alstom, your path for generating earnings is going to have to change.”

GE has said the Alstom deal could add 15 to 20 cents per share in earnings in 2018, or nearly 10 percent of the $2.05 per share consensus estimate, according to Thomson Reuters I/B/E/S.

In Alstom’s place, analysts and investors said, GE would likely pursue other acquisitions to boost its core industrial businesses, buy back more shares, or a combination of both.

Should the appliances sale to Electrolux collapse, GE could seek buyers such as LG Electronics Inc (066570.KS), Samsung Electronics Co Ltd (005930.KS) or manufacturers in China, analysts at William Blair said. Other options could be Mexico’s Mabe, in which GE holds a stake, or private equity companies, said Moody’s analyst Russell Solomon.

Immelt’s plan to exit $200 billion in finance assets, the lynchpin of his strategy, appears on target. GE has already agreed to unload $23 billion in GE Capital assets since April.

Even that pullback carries uncertainty. GE’s path to escape federal regulation as a systemically important financial institution, or SIFI, is not entirely clear, GE Capital chief Keith Sherin told Reuters this week. [ID:nL1N0ZG1LH]

“The GE capital side of this is going very well,” said John Traynor, chief investment officer at People’s United Bank, which holds GE shares. “That’s got to stay on track. If that slowed down, it would really spook investors.”

Reporting by Lewis Krauskopf in New York; Editing by Richard Chang

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