General Electric is Getting Down To “Fighting Weight”

Pictured above, GE CEO Jeffrey Immelt is taking President Barack Obama on a tour of giant building 273 in the General Electric’s “Main Plant” in Schenectady, New York. This is the image Immelt wants everyone to picture his company as.

Thank you to my comrade KC Jones for kicking off this discussion by writing about “Time to sell GE Stock? NO! Time To Buy

Headlines all over the place:

General Electric Co will shed most of its finance unit and return as much as $90 billion to shareholders as it becomes a “simpler” industrial business instead of an unwieldy hybrid of banking and manufacturing.

The company on Friday outlined a restructuring plan that includes buying back up to $50 billion of its shares, selling about $30 billion in real estate assets over the next two years and divesting more GE Capital operations. GE stock jumped 8.5 percent.

 

“The stock has been under-owned by institutional investors, and that’s going to change now,” said Tom Donino, co-head of equity trading at First New York Securities.

Jeffrey Immelt
Jeffrey Immelt

For decades, General Electric was happy to reap the enormous profits that arose from its finance arm as it swelled into one of the country’s biggest lenders.

But as banking has become a less profitable and riskier business, G.E. will complete a transformation it began amid the tumult of the financial crisis: selling off most of that division over the next two years.

Beginning by selling $26.5 billion worth of real estate assets, G.E. is hastening to return to its roots as one of the mightiest industrial companies in the world, whose operations include jet engines, oil drilling equipment and medical devices. What it will mostly shed is GE Capital, a lender with hundreds of billions of dollars’ worth of assets.

The divestiture campaign, code-named Hubble within G.E. and put together in about six weeks, will erase one of the main legacies of the conglomerate’s vaunted former chief executive, John F. Welch Jr. But it is also a recognition that manufacturing, not finance, represents the company’s future.

“We’re not sentimentalists,” Jeffrey R. Immelt, the multinational’s current chairman and chief executive, said in an interview.

GE is close to selling the real estate portfolio that GE Capital Real Estate holds. It most likely will however still continue as a commercial real estate lender but not directly own real estate assets. GE Asset Management will continue to own real estate holdings as part of its asset base that it manages for GE’s pension/401(k) and external asset management business.

Immelt, 59, has been shrinking GE Capital since its access to credit dried up in the financial crisis, imperiling all of Fairfield, Connecticut-based GE.

His strategy: move away from finance and focus on industrial operations, the traditional heart of the company founded by Thomas Edison (and built by a real army of great developers/innovators/managers like Charles Steinmetz, Gerald  Philippe,  Ivar Giaever, Reg Jones). Investors favor the perceived consistency of industrial earnings over financial, which can be volatile.

I learned almost a half century ago that the General Electric Company was/is the greatest company in the World. As a quote in my university 50th Reunion book says: “Everything I know about supply chain, logistics and electronic commerce, I learned from General Electric.”

 

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