NEW YORK (AP) - A Citigroup analyst said Tuesday the potential sale of General Electric Co.'s plastics unit could fetch bids of more than $10 billion.
Reports in The Wall Street Journal on Monday indicated the diversified company could see offers in the $8 billion to $10 billion range for its plastics business, which has been battling rising raw material costs.
''We believe the asking price could offer potential bidders attractive returns, and would not be surprised to see the sale price rise above this level,'' wrote Jeffrey T. Sprague in a client note. Likely buyers could include Saudi Arabian conglomerate SABIC, BASF AG or Dow Chemical Co., he added.
A sale of the unit would probably dilute GE's 2007 earnings per share by three cents to four cents, added Sprague, but would reduce earnings volatility by eliminating the unit's fluctuating commodity costs.
In 2006, Sprague estimates GE Plastics generated $6.7 billion in sales and $738 million in operating profit.
However, Bank of America Securities analyst Robert P. McCarthy said an $8 to $10 billion valuation appears a bit high from his private-equity contact checks, and believes any price paid will be more likely at the low end of the range. McCarthy said timing of a deal is unclear, and notes this business has been on the block for awhile.
''That said, we believe any sale north of $8 billion, (implying greater than 7 times estimated EBITDA of $1.2 billion) for this cyclical business could be a key positive catalyst for GE stock in the near-term,'' McCarthy said in a research note.
