On December 7, 2015, after four weeks of trial in the U.S. District Court of the District of Columbia, GE terminated its $3.3 billion sale of its appliance business to Electrolux.
In September of 2014, Electrolux announced its acquisition of GE’s appliance business. The deal was characterized as a way to make Electrolux more competitive with Whirlpool and allow GE to simplify its business, focusing on technology and infrastructure.
However, on July 1, 2015, the DOJ brought a law suit to challenge Electrolux’s $3.3 billion acquisition of GE’s appliance business because as alleged the deal would combine two of the leading manufacturers of ranges, cooktops and wall ovens sold in the United States. Generally, the DOJ alleged that the deal would eliminate competition that benefits American consumers and home builders who buy cooking appliances adn that the deal would result in higher prices and less options. More specifically, the DOJ’s main antitrust concerns focused on appliances such as ranges, cooktops and wall ovens sold to “contract-channel” purchasers. According to the complaint, contract-channel purchasers are single-family homebuilders, multifamily homebuilders, property managers of apartments and condominiums, hotels and governmental entities who individually negotiate contracts for major cooking appliances with suppliers like GE and Electrolux. The DOJ alleged that GE, Electrolux and Whirlpool are the three biggest suppliers in this contract-channel market, accounting for more than 90 percent of sales.
On November 9, 2015, the DOJ and the parties began the trial before the Honorable Emmet G. Sullivan in the U.S. District Court for the District of Columbia. GE and Electrolux were trying to argue that the DOJ’s market was too narrow, however, it had difficulties proving that the DOJ was wrong. The DOJ was able to put on evidence regarding the contract channel and even obtained testimony from former executives who testified that GE and Electrolux only factored in each other and Whirlpool, when setting prices on cooking appliances. The DOJ was also able to discredit self-serving testimony from Electrolux’s executives.
The DOJ’s win demonstrates that its lawyers are litigation ready. The DOJ’s approach to merger review is very flexible and sophisticated. Here, the Electrolux/GE merger challenge was based on alleged competitive harm in narrow relevant markets focused on large customers with specific needs. The DOJ’s theory of harm is very similar to the FTC’s theory used in its trial win regarding Sysco/US Foods and the theory used in its investigation and complaint filed against Staples/Office Depot (contract channel/large customers national customers with specialized needs). The DOJ’s challenge of the Electrolux/GE deal focused on the elimination of competition for the sale of ranges, cooktops and wall ovens to the contract channel. The DOJ, however, didn’t make up this narrow market rather the market was discovered in the DOJ’s very thorough investigation through depositions of executives, third party interviews, and a review of third party documents as well as the companies own documents. While the parties may have thought that the DOJ was alleging too narrow of a market, the DOJ’s trial team had put together a credible case based on documents, testimony and other evidence. In the end, Electrolux was running out of time and the four week trail was not going its way so GE made the call to abandon the merger and walk off with the $175 million reverse break up fee.