” Will General Electric (GE) Bring Back Good Things to Life ? ” – April 19, 2015.
Last week’s ( Friday, April 10, 2015 ) announcement of General Electric ( GE ) to sell $ 26. 5 billion of real estate assets of GE Capital had been music to the ears of many while being skeptical to some. Shareholders will feel delighted while some big banks/institutions may likely be de – lighted ! Shares of GE went up by 11 % pronto to $ 28. 51 unseen since the financial crisis of 2008.
With this, GE, one of the oldest and the best managed company seems to have come 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.
In a swift action that may be 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 sooner this year may have been the catalyst triggering this action. GE also may be keen to shed the tag of SIFI ( Systemically Important Financial Institution ), the ‘fonctionnaire nom’ for a lender deemed by the government as ‘ too big to fail ‘. GE’s empire encompasses 175 countries and employs 3,05,000 people.
In management it is a ‘line retrenchment’ action.
– GE will now be less of a ‘too big to fail’ lender.
– GE will likely buy back $ 36 billion in cash from overseas.
– GE will receive about $ 50 billion from stock repurchase.
All of these to return more money to shareholders – say about $ 90 billion, overall.
Financial crisis of 2008 and the profound change in market movement left the industrial conglomerate in difficulties to borrow debt ( short-term ) for its day-to-day operations. IT aimed to cut costs. It has also been in the process of shedding its presence in finance slowly. It, however, has taken time. Better late than never may have been in the mind.
With this move, GE is expected to bring in just 10 % or less in profit from finance by 2018 and will restrain its lending drastically making it available only for customers purchasing industrial machines, jet engines, oil field equipment … .. .
Let’s now turn to the management takeaway from this :
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 Oil & Gas (equipment manufacturers) acquisitions. Since 2009 its Oil & Gas Division has shown the fastest growth in sales. It acquired Dressler Inc., a manufacturer of engines, pumps, and valves for $ 3 billion. It paid WellStream, a British manufacturer of Oil drilling pipes $ 12. 2 billion. It gave $ 2. 8 billion for a division of Wood Group in 2011 to enhance recovery of oil from large undersea wells. It also wanted to take over Dril Quip (DRQ) for $ 4. 4 billion – an offshore drilling and power equipment manufacturer for deep water and harsh environment conditions. It gave $ 13. 5 billion in the take over of the energy assets of the French Conglomerate, Alstom. It has consistently engaged itself in slow transformative action mindful of the prevailing 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 will mark GE’s actions to get back to its roots and combine to form in to a renewed industrial giant. GE’s CNG in a Box; Micro CNG Plant(s); 5K Blind Shear RAM; Acoustic Leak Detection System in sub sea equipment; Electrical Safety System for Offshore Platforms – have all gained prominence since 2011. Each bore the stamp of CEO, Jeffrey R. Immelt.
Characteristic of products meeting the needs of customers has been the priority.
3. These mark the beginning of a move for GE as well as to its CEO, Jeffrey R. Immelt, to come out of the shadow of the previously popular Jack Welch ( 1981 – 2001 ) while presiding the transformation of GE under CEO, Immelt’s own steam. He is also, probably, on course to create a legacy for himself having been at the helm for 14 years. ( In the Mobile World, recount Apple’s CEO, Tim Cook, establishing a name for himself with the launch of iWatch recently ).
CEO, Jeffrey R. Immelt, proves himself to be an ‘independent influencer’ of the GE family.
Will CEO, Jeffrey R. Immelt, be the ” Difference Creator ” of GE soon ?
” Dieu avec nous “
Saturday, April 18, 2015 – 11. 39 p.m. ( IST )
Tidbit : General Electric (GE) – Closing 17/4/2015 ; Market Cap : $ 274. 64 billion; P/E Ratio : 18. 01; EPS : $ 1. 51; Stock Price : $ 27. 25; Shares Outstanding : 10. 07 billion.