Commentary

No Shocker, But GE Plans To Further Dismantle The Conglomerate

The ever-shrinking General Electric, which was delisted Tuesday removed from the Dow Industrials index after 110 consecutive years on the index, has  unveiled plans to shed both its healthcare business and the recently acquired Baker Hughes, which provides drilling services to oil and gas companies. It will focus exclusively on aviation, power and renewable energy going forward, with a streamlined management.

GE Healthcare, with more than $19 billion in revenue last year, will become a publicly traded, standalone company, retaining the GE name. The company will sell about 20% of its interest in the business and distribute the remaining 80% to GE shareholders through a tax-free distribution. 

“We will build on strong customer demand for integrated precision health solutions and great technology with digital and analytics capabilities as we enter our next chapter,” Kieran Murphy, current and future president and CEO of GE Healthcare, says in a statement.

“When General Electric Co. bought oilfield services giant Baker Hughes last July, it created a global industry colossus with $22 billion in annual revenue. GE promised to digitalize oilfields worldwide, marrying its expertise in big data, analytical software and subsea equipment with Baker Hughes’ experience in drilling services, chemicals and tools,” reports Reuters’ Liz Hampton.

But its plans to sell its 63% percent stake over the next three years “comes amid slipping market share, management missteps and culture clashes that have unsettled employees and frustrated suppliers and customers, according to data reviewed by Reuters and interviews with more than 30 employees, former employees, recruiters, analysts, suppliers and customers,” she continues.  

The combined company lost market share, in fact, in 12 of 19 services and equipment sectors between 2016 and 2017, according to Reuters’ analysis, although GE maintains most of the slippage occurred before the deal closed last summer.

On the positive side, the company is “holding on tight to its aviation business, and it has plenty of reasons to do so,” writes CNBC’s Leslie Josephs. “The aviation business is booming, with Boeing and its European rival Airbus — the two main manufacturers of passenger jets — enjoying record orders for passenger planes, thanks to low interest rates, a growing economy and record numbers of travelers taking to the skies each year.”

It is “the world's biggest manufacturer of jet engines for the globe's most common airplanes. It makes both its own engines and some of the most widely flown under its joint venture, CFM International, with France's Safran,” Josephs points out.

“If you’re No. 1 in a business that’s growing, you keep it,” Teal Group VP Richard Aboulafia tells her.

During a conference call with analysts, transcribed here, and in an interview with the New York Times, “[CEO John] Flannery emphasized that GE’s management culture was being overhauled, as well as its portfolio of businesses,” write Steve Lohr and Michael J. de la Merced.

“Corporate management will be leaner, with most decisions made by the businesses themselves. By 2020, corporate overhead costs will be trimmed by $500 million. Those cuts are in addition to a program to reduce companywide expenses by $2 billion this year,” they continue.

“Our businesses will be the center of gravity,” Flannery said during the call, “and will run on a new operating system that we believe will improve our operations and cash performance.”

Lohr and de la Merced point out “that is a conscious departure from the past, when GE was regarded to have top-heavy management. Even the company’s use of corporate jets — and in particular the use of an empty second jet to follow the one that carried [the most recent former CEO Jeff] Immelt — had been criticized as wasteful.”

Yesterday’s announcement “adds to a growing list of subtractions in recent years,” recalls Nathan Bomey for USA Today. “This is no longer the company responsible for NBC, dishwashers and complex financial instruments. Put simply, the company got bloated, leading to a disappointing financial performance and unwieldy operations.”

As for the lessons to be learned by the erosion and dismantling of GE over the years, the Wall Street Journal’s Andy Kessler concludes an analysis of the company since its heyday as a “hedge fund” under former CEO Jack Welch in the ’90s with the following observation:

“Like GE once did, Apple and Amazon each represent around 1% of the U.S. economy. But only Apple is in the Dow. It’s a pretty good bet that in 10 years, and certainly in 20, these companies won’t be the dominating players they are today. I can identify the seeds of destruction already planted at Apple, Amazon, Google and Facebook. No need to break them up; the market will take care of that for us. Just ask GE.”

What’s left of it.

1 comment about "No Shocker, But GE Plans To Further Dismantle The Conglomerate".
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  1. Randall Bongarten from Bonten Media Group, June 27, 2018 at 7:51 a.m.

    GE was not delisted from the New York Stock Exchange, as reported in the opening paragraph.  It was removed from the Dow Industrials index. 

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