12 December 2018630

RISE OR FALL OF GENERAL ELECTRIC

When most people on the planet read about General Electric, they probably think of light bulbs, televisions, and washing machines. General Electric was born in 1892 as a result of the merger of Thomson-Houston and Edison General Electric.

The company is a typical industrial epoch conglomerate of the 3rd technological revolution, and the company is painfully undergoing a transformation of business. Over the past 15 years, many mistakes have been made: unsuccessful acquisitions of major competitors, business diversification without synergy, business development, where GE did not have competencies, care of key employees. Two strong and profitable directions now are Aviation (with a $ 200 billion order book) and Healthcare, which pull the entire company, and the two most problematic are Power, and GE Capital, where the level of risk has greatly increased. In addition, the company completely ignored the technological revolution in the solar energy and smart grid segment. In the recovery plans proposed by the new CEO Lawrence Culp (a very successful track record - the former head of the Danaher conglomerate) - return to the profitability of the Power segment, sale of non-core assets, return of former effective directors (John Rice from the Power division). In many respects, GE shares are very cheap, with Eurobonds with redemption in 2020-2021 now yielding about 6% in dollars. GE's short-term creditworthiness of Eurobonds is beyond doubt (hence the BBB + rating from S & P). The long-term prospects of the super-holding, which in 2000 was the most expensive public company in the world and whose shares have fallen seven times since then, still raise doubts. On June 19, 2018, the more than 100-year history of the General Electric on the Dow Jones Industrial Average came to an end, and the last remaining original Dow component was excluded from the index. Just five months later, on November 9, 2018, GE shares fell 8.9 percent during presale, dropping below $ 9 a share for the first time after the financial crisis.
2008 - The financial crisis. Shares of the company fell by 42% during the year, and after the departure of the non-replaceable Welch, it became clear that GE was being bloated. Warren Buffett supported the company by investing $ 3 billion. But GE's problems did not end with a financial crisis. The purchase by the French transport company Alstom in the amount of $ 9.5 billion in 2015 was considered a complete failure.
  
Under the leadership of Jeffrey R. Immelt, the former head of GE Medical Systems and Welch's successor, the company was forced to wind down GE Capital and return to its origins in production. GE also sold billions of dollars worth of properties and refused NBCUniversal, GE Plastics, GE Water and GE Appliances.

In 2009, the company reduced its annual dividend from $ 1.24 to $ 0.82. Dividends fell even more in 2010. Immelt served as CEO of General Electric for 16 years and resigned earlier than expected in 2017. He later became chairman at Athenahealth.
2017 - New Storm. General Electric celebrates its 125th anniversary in 2017 and deserves a reputation as one of the most reliable participants in the stock market. Shares have fallen by 69.05% since January 2017, when the company announced a reduction of 12,000 jobs in 2017, while dividends for December decreased by 50%. The market capitalization of the company, which in August 2018 amounted to 107 billion dollars, fell more than the market capitalization of competitor Honeywell International Inc. As of the last fall of General Electric on November 9, 2018, the company was estimated at $ 72.63 billion.
In November 2017, GE announced plans for a broad restructuring and halved its quarterly dividend from 24 cents to 12 cents per share. In the same month, GE laid off thousands of employees in all parts of the country. After the announcement, the company's shares fell by 3.5%. On October 1, 2018, GE announced that H. Lawrence Culp would replace John Flannery as chairman and CEO of the company.
The industrial conglomerate said it would sell its stake in the oil company Baker Hughes, hoping that these actions would allow it to focus on aviation, energy and renewable energy.
GE Healthcare's medical division announced April 2 that it would sell its IT business to Veritas Capital for $ 1.05 billion. This sale was the first of the planned sales of assets in the amount of 20 billion US dollars to create a more focused company.
Nevertheless, we should not forget that GE has customers in more than 180 countries, including Kazakhstan and Russia, and it employs 313,000 people worldwide. GE operates in several large industrial segments, including energy, renewable energy, oil and gas, aviation, healthcare, transportation, lighting. GE Power is the largest revenue generator for GE, earning nearly $ 36 billion in 2017. The next most profitable segment was GE Aviation, with revenue of about $ 27.4 billion.
Summary:

General Electric seeks to reduce its excess weight in order to be reborn from the ashes and become a more focused company. The principle on which the new management of the company is acting now is “to leave what brings profit, to focus and sell everything else”. As we know, cleaning is not without pain, and analysts are probably not overly enthusiastic about adding fuel to the fire. Certainly the fall of such a giant will echo around the world, but the effect will be smooth and not comparable with the year 2008. If the new head of the company will be able to deploy a cumbersome car to its former profitability and growth, which is quite likely to be seen already in 2019, then GE has hope for its former leadership.

 

Eldiyar Muratov  for Forbes