GE appoints its ‘new messenger’
CEO Immelt steps down amid squeeze for changes from activist investor Trian
NEW YORK Jeffrey Immelt is stepping down as chairman and chief executive of General Electric Co., bringing to an end a tumultuous 16-year tenure in which he dramatically reshaped the manufacturing powerhouse but failed to win over Wall Street.
Amid mounting pressure from activist investor Trian Fund Management for operational changes, GE said Monday that Immelt will be replaced by John Flannery, a 30-year company veteran who oversaw a jump in profits at the health-care unit. In a sign of just how great opposition to Immelt had become in the investing community, the stock soared the most in more than a year and a half after the announcement was made.
There had been great expectations when Immelt, 61, replaced the legendary Jack Welch as CEO back in 2001. The new boss was seen as a big thinker who could guide GE into the digital age and do so with a lighter touch than his cutthroat predecessor. Immelt hasn’t shied away from major acquisitions to sharpen the focus on making jet engines, medical scanners and gas turbines, including the US$10 billion purchase of Alstom SA’s energy business. He also withdrew GE almost entirely from financial services, which once accounted for about half of sales.
Yet investors were unimpressed. As the stock languished — shares are lagging behind the broader market this year after underperforming in 2016 — Nelson Peltz’s Trian began stepping up pressure on Immelt. In March, GE agreed to deepen cost cuts after discussions with the activist investor.
“GE may not necessarily need a drastically new message, but it needs a new messenger,” said Barclays Plc analyst Scott Davis. It will take several years to discover the payoff of Immelt’s initiatives, he said. “The market didn’t want to give Immelt any credit for those investments because so many of the things in the past haven’t worked out.”
Flannery, 55, has an “excellent” reputation inside GE despite not being known well by shareholders, Davis said. Flannery may be more willing to pursue a much-needed breakup of the company, Davis said.
The incoming CEO said he would scrutinize GE’s portfolio “with speed and with urgency and with no constraint.” He will take over on Aug. 1 and assume chairman duties following Immelt’s retirement on Dec. 31. The appointment is the result of succession planning that’s been underway since 2011, the company said.
“I’ll look at each business, I’d say, with a focus on its performance, it’s growth outlook, the cash, the cost structures, the returns, the competitive environment,” he said on a conference call with investors and analysts.
GE jumped 3.8 per cent to close at US$28.94 in New York after climbing as much as 5.5 per cent for the biggest intraday gain since October 2015. The shares dropped 12 per cent this year through Friday, compared with an 8.6 per cent gain for the Standard & Poor’s 500 Index.
Flannery, who was named the head of GE Healthcare in 2014 after handling M&A for the whole company, has boosted sales and profit margins in the division. He joined GE in 1987.
“John Flannery has a great background in global business, deal making and most recently in leading a turnaround in GE’s US$18 billion medical business,” Welch said by email. “He will bring a great internal operational focus to the table going forward.”
Immelt “brought his best every day,” Welch said.
Immelt has become one of the world’s best-known CEOs, yet never won the accolades that Wall Street bestowed on his predecessor. The shares have fallen about 30 per cent since Immelt took over as he faced criticism for cutting the dividend in 2009 and paying too much for some acquisitions. He also built up the oil and gas division just before crude prices plummeted. On Monday, GE said it won approval from U.S. antitrust officials to combine its oil and gas business with Baker Hughes Inc. to create the No. 2 oilfield services company in the world.
Immelt won widespread praise in 2015 for a plan to sell the bulk of the volatile GE Capital business and closing the Alstom deal amid heavy political pressure in France. Trian took a US$2.5 billion stake that year while saying it supported the portfolio shift.
The relationship with Trian began to sour in recent months as investors questioned GE’s performance. GE on Monday reaffirmed its 2017 outlook while omitting mention of next year’s profit target of US$2 a share.
Trian didn’t immediately respond to a request for comment.