By Thomas Gryta
General Electric Co.'s new leader plans to unveil a road map
Monday for the conglomerate that will focus on three of its biggest
business lines, but stops short of a breakup or more radical
restructuring of the 125-year-old giant.
Chief Executive John Flannery, who has been conducting a
strategic review since he took over on Aug. 1, is expected to focus
on GE's aviation, power and health-care divisions, one person
familiar with the matter said. The CEO will look to exit most of
the rest of its operations.
GE would be pulling back from its transportation unit, one of
the oldest and biggest makers of diesel locomotives, as well as GE
Lighting, which traces its roots to Thomas Edison and makes LED
bulbs and energy management sensors.
While the three divisions will be the core of GE, Mr. Flannery
is expected to stress at a meeting Monday with investors and
analysts that he will regularly evaluate the company's portfolio of
businesses as part of how he leads the conglomerate, the person
said.
The Boston-based company also plans to eventually shed its
majority stake in Baker Hughes, which became a separate public
company in July after merging with GE's oil and gas operations,
this person said.
GE owns 63% of Baker Hughes, which had a market value of $40
billion based on Friday's close. While it intends to exercise its
option to exit Baker Hughes, the process hasn't started and would
be subject to some discussion between the companies' boards. Under
the current arrangement, GE is restricted from selling its stake
for several years.
Mr. Flannery is expected to streamline GE's corporate functions,
this person said. The company has about 24,000 people outside of
its major divisions, in research, digital and headquarters
functions. More research work will be moved into specific business
units and software development will be limited to the company's
core industries.
It's unclear how many jobs would be affected by the
restructuring moves and Mr. Flannery isn't expected to announce a
specific target on Monday. GE employed about 295,000 people at the
end of 2016.
The meeting will give a broad road map and outline a continuing
process, but won't detail every component of Mr. Flannery's pledge
to sell more than $20 billion worth of assets. People close to the
process say GE Transportation, which makes locomotives, is part of
that plan. The exit from Baker Hughes isn't considered part of the
$20 billion plan, said the person familiar with the matter.
Mr. Flannery and the GE board have been reviewing the company's
dividend, though it's unclear what has been decided. GE has
struggled to generate enough cash flow from its industrial
operations to cover the $8 billion payout in recent years,
especially as it has pared down its GE Capital unit. It cut the
dividend by half in 2009 during the financial crisis.
GE shares are down 35% this year, hitting levels not seen since
2012, compared with a gain of 15% from the S&P 500. The company
has lost $50 billion in market value since mid-July, when investors
were told to wait almost four months for Mr. Flannery to complete
an internal review and reset long-term financial projections. The
stock closed Friday at $20.49.
Some investors and analysts have called on GE to reduce the
dividend, saying the company cannot afford to continue the payout.
Others are pushing for more radical changes to its operations,
including breaking up the company or selling off bigger units, such
as GE Healthcare, which makes MRI machines and other hospital
equipment.
Aviation, power and health care accounted for about 58% of the
company's revenue at the end of 2016 and 156,000 employees. The
company has already made some changes to the divisions this year,
such as merging the energy connections division into GE Power for a
projected $1 billion in annual cost savings.
GE Aviation is one of the top manufacturers of jet engines and
enjoyed healthy orders in recent years as it rolled out a new
generation of products. GE Healthcare was run by Mr. Flannery until
the summer; he led a turnaround of the unit driven by cost
reductions and expanding its services to drug makers.
GE Power, however, which supplies turbines for gas and
coal-fired power plants, has struggled with its former management
misjudging market demand and carrying excess inventory, the company
has said. The business will be a major focus at the Monday meeting
as division head Russell Stokes is one of four presenting
executives.
Former CEO Jeff Immelt revamped GE over his 16 years, getting
out of media, plastics, appliances and most of financial services,
but also made some ill-timed deals on the oil patch and power
markets. He expanded the power business in 2015 by acquiring assets
from rival Alstom SA in 2015 and spent billions on energy
acquisitions culminating in the merger of GE's oil-and-gas business
with Baker Hughes last year.
Mr. Flannery hasn't been waiting for the investor meeting to
make high-profile moves. He has delayed parts of a new Boston
headquarters project, grounded the corporate jets, moved to shut
down research centers, and started thousands of layoffs.
After lowering profit targets in October, the new CEO pledged to
cut an additional $1 billion in annual spending. Under pressure
from activist Trian Fund Management, Mr. Immelt had planned to cut
$2 billion in costs by the end of 2018.
Mr. Flannery, who has spent his entire 30-year career at GE, has
made management changes to many divisions and replaced chief
financial officer Jeff Bornstein with Jamie Miller, who will be in
the spotlight Monday. Mr. Flannery is also looking at the makeup of
the company's board, suggesting he will shrink it, and recently
gave Trian a seat.
Write to Thomas Gryta at thomas.gryta@wsj.com
(END) Dow Jones Newswires
November 13, 2017 00:15 ET (05:15 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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