” Will General Electric (GE) Bring Back Good Things to Life ? ” – April 18, 2015.
Last week’s announcement ( Friday, April 10, 2015 ) by General Electric ( GE ) to sell $ 26. 5 billion of Real Estate Assets of GE Capital was music to the ears of many while some remained skeptical of the effect. Shareholders are likely to be delighted while some big banks/institutions may likely feel de – lighted ! Shares went up by 11 % pronto to $ 28. 51 unseen since the financial crisis of 2008.
With this, GE, one of the oldest and best managed company seems to be coming a full circle back to where it was in 1981 returning to its core and tasty muttons – the well reknowned industrial operations – from which it is expected to gain nearly 90 % revenue(s) in 3 years’ time, compared to the 58 % it exhibits now. GE’s empire encompasses 175 countries and employs 3,05,000 people.
In a swift action, likened to Usain Bolt’s sprint, GE helped by the Blackstone group shed $ 26. 5 billion without any auction that could possibly have fetched more. Plummeting real estate prices and the likely increase in Fed rates by this year end or earlier may have been the catalyst triggering this quick action.
In management terms, it may be called the ” line retrenchment ” action.
– GE will now be less of a ‘ too big to fail ‘ lender;
– GE will also buy back $ 36 billion in cash from overseas, ( tax heavy, notwithstanding );
– GE will release about $ 50 billion from stock repurchase.
All these to return more money to shareholders – say about $ 90 billion overall.
GE will also be equally keen to shed the tag of SIFI ( Systemically Important Financial Institution ), the ‘fonctionnaire nom’ for a leader deemed by the government as ‘ too big to fail’.
Financial crisis of 2008 and the profound change in market movement left the industrial conglomerate in difficulties to borrow debt ( specially short-term ) for its day-to-day operations. By now it has set in the process of shedding its presence in finance slowly. It took sometime. Better late than never may be on mind. With this move GE is expected to bring in just 10 % or less of profit from finance by 2018 and will restrain its lending also drastically making it available only for customers purchasing industrial machines like jet engines, oil field equipments … .. .
Let’s now turn to the management take away from this now :
1. This marks the realization and conviction that GE’s ‘ Core Competence / capability ‘ ( Recall management Guru Late CK Prahalad and Prof Gamel ) is Industrial Engineering ( Aviation, Power Generation, Medical devices .. . ) and not so much Financial Engineering. Since 2007 GE has been going big on its Oil & Gas (equipment manufacturers) acquisitions. Since 2009 its Oil & Gas Division has shown the fastest growing sales. It acquired Dressler Inc, a manufacturer of engines, pumps, and valves for $ 3 billion. It paid Well Stream, a British manufacturer of oil drilling pipes $ 1. 2 billion. It gave $ 2. 8 billion for a division of WoodGroup in 2011 to enhance recovery of oil from large undersea wells. It also wanted to take over Dril Quip (DRQ) offshore drilling and production equipment for deepwater and harsh environment conditions for $ 4. 4 billion. It also paid $ 13. 5 billion to take over the energy assets of the French Conglomerate, Alstom. It has consistently engaged itself in slow transformative action(s) considering the geopolitical conditions and business circumstances.
Corporate growth in line with future of businesses in which GE competes is the emphasis here.
2. Core business, specialization, growth, focus and low risk are the keywords that mark GE’s actions now to get back to its roots and combine to form a renewed industrial giant. GE’s CNG in a Box; Micro CNG Plant; 5 K Bland Shear Ram; Acoustic Leak Detection System in subsea equipment; Electrical Safety System for Offshore Platforms have all gained prominence since 2011. Each bore the stamp of the CEO, Jeffrey R. Immelt.
Characteristic of products meeting the needs of customers has been the priority.
3. This also marks the beginning of a move to GE as well as to its CEO, Jeffrey R, Immelt, to come out of the shadow of the previously popular CEO, Jack Welch ( 1981 – 2001 ) while presiding the transformation of GE under Jeffrey R. Immelt’s own steam. CEO, Jeffrey R. Immelt, is also on course to creating a legacy for himself, having been at the helm for 14 years. ( In the mobile world a parallel can be drawn to Apple’s CEO, Tim Cook, coming out of the shadow of Late Steve Jobs with his own iWatch ).
CEO, Jeffrey R. Immelt, proves to be an ‘independent influencer’ of the GE family.
Will CEO, Jeffrey R. Immelt emerge as the ” difference creator ” for GE ?
” Dieu avec nous “
Saturday, April 19, 2015 – 11. 29 p.m. (IST)
Tidbit : General Electric ( GE )-(17/4/2015 closing) ; Market Cap : $ 274. 64 billion; P/E Ratio : 18.01; Stock Price : $ w27. 25; EPS : $ 1. 51; Shares outstanding : 10. 07 billion.