GE Is Seeking Bids on Plastics Unit Auction
Appears to Reflect Concerns From Regulators
About Bidders Teaming Up 

RANDALL SMITH & KATHRYN KRANHOLD / Wall Street Journal 8jan2007

General Electric Co. has asked for bids on its plastics business, valued at up to $10 billion, in an auction that appears to reflect new concern from the U.S. Department of Justice about lack of competition among possible private-equity buyers.

GE has told a handful of private-equity buyout firms contacted about the possible plastics-unit sale that they face restrictions on their ability to team up with other private-equity bidders, according to people familiar with the sale effort. Although the exact nature of the restrictions isn't known, one of the people said firms contacted can't call other buyout funds about teaming up.

GE for some time has been weighing the future of the plastics business, where former Chief Executive Jack Welch made an early mark as its boss and which also employed current CEO Jeffrey Immelt. A spokesman for GE, based in Fairfield, Conn., declined to comment.

The division has been plagued by raw-material inflation and competition. Mr. Immelt has indicated in conference calls with analysts and investors that GE would consider selling some of its commodity lines while focusing on specialty products.

Wall Street firm Goldman Sachs Group Inc., acting on behalf of GE in the possible plastics sale, has conveyed the bidding restrictions to a handful private-equity firms, the same people said. Goldman has also contacted some potential plastics-industry bidders, they added. Goldman declined to comment as well.

The "no-club" issue has taken on greater significance since last October when the Justice Department launched an antitrust probe of private-equity funds. The probe followed a pattern that arose in the past few years in which private-equity firms would team up in so-called "clubs" which some sellers fear limits the number of bidders and the size of the bids.

Such restrictions may become more common in auctions of substantial business assets, some takeover experts say, amid concerns about the possible anti-competitive behavior among private-equity funds. Although they have been tried in the past, such restrictions are often dropped as an auction proceeds, they add.

Because some deals have been done recently at much larger sizes involving three to five buyout funds and topping $30 billion counting debt, the GE plastics unit may be small enough to maintain such restrictions for most or all of the auction.

While the ostensible goal of the formation of such clubs has been to spread the risk of larger investments by the competing funds, some takeover professionals have voiced concern that the clubs may also limit competing, higher bids.

Since Mr. Immelt became CEO in 2001, he has transformed GE by selling slow-growth and underperforming businesses including reinsurance, industrial diamonds and motors.

Among them is Employers Reinsurance Corp., which Swiss Re acquired last year for $7.8 billion in cash and securities plus assumption of $1.7 billion in debt. It also spun off its consumer insurance group, renamed Genworth Financial Inc.

Mr. Immelt has also expanded into health-care-information technology, water treatment and security technologies. His biggest acquisitions include the British biosciences and medical diagnostic firm, Amersham PLC, for around $9 billion, and Universal's entertainment assets for around $14 billion, which formed NBC Universal.

GE last month completed the sale of its silicon-and-quartz business for $3.4 billion to Apollo Management LP, a private-equity firm. It had annual sales of roughly $2.5 billion. Since that sale, analysts have focused on a possible sale of all or part of plastics.

The plastics unit has current estimated revenues of $7 billion. Its value is estimated at $8 billion to $10 billion. In the first nine months of 2006, its revenue rose 1% to $5 billion, but operating profit fell 13% to $560 million.

GE has been shifting from commodity products such as plastic used in compact discs into higher-priced specialty materials used in autos, aviation and health care. For example, GE has developed lightweight materials including resins for car roofs, fenders and steering wheels.

Last month, Mr. Immelt said GE would "evaluate" the case for keeping plastics, but that he wasn't "necessarily" committed to wait for a turnaround. He noted that there was "infinite capital" to sell underperforming businesses to private-equity firms or strategic buyers.

Although some investment banks conducting auctions have sought to stimulate competition among rival private-equity bidders, in the past few years no agreed-to private-equity sale pact has yet been topped by a higher bid from a rival buyout firm.

—Henny Sender contributed to this article