PAR­ING DOWN

Board mem­bers to go down to 12

Bangkok Post - - BUSINESS - ALWYN SCOTT ANKIT AJMERA

GE’s new boss out­lines steps for mak­ing the con­glom­er­ate smaller and more fo­cused.

Gen­eral Elec­tric Co’s new chief ex­ec­u­tive John Flan­nery on Mon­day out­lined steps that will turn the big­gest US in­dus­trial con­glom­er­ate into a smaller, more fo­cused com­pany, sur­pris­ing some in­vestors who sold the com­pany’s shares to a five-year low.

Flan­nery’s plan to shrink GE’s mul­ti­in­dus­try ar­ray of busi­nesses was a re­ver­sal of the deal-driven em­pire build­ing of his pre­de­ces­sors, Jeff Im­melt and Jack Welch, and po­ten­tially a mile­stone in the de­cline of the con­glom­er­ate as a busi­ness strat­egy.

Other com­pa­nies that once em­u­lated the GE model of spread­ing bets among di­verse in­dus­tries are now un­wind­ing their port­fo­lios as well, some­thing Im­melt also did through­out his 16 years as CEO, even as he made ac­qui­si­tions.

Flan­nery said he would pare GE down to three core busi­nesses: power, avi­a­tion and health care. He will keep Im­melt’s strat­egy of build­ing soft­ware to com­ple­ment GE’s ma­chin­ery, al­beit with a nar­rower fo­cus and re­duced bud­get.

For in­vestors, Flan­nery’s de­ci­sion to cut both the div­i­dend and the 2018 earn­ings fore­cast by half added up to a whole that was less than they judged GE be worth last week.

GE shares fell to their low­est level in more than five years as in­vestors wor­ried the years-long over­haul would not pare down enough ex­penses or gen­er­ate as much cash as they hoped. They closed off the day’s lows, down 7.2% to $19.02.

GE stock has ef­fec­tively been dead money since Septem­ber 2001, when Im­melt took over, post­ing a neg­a­tive to­tal re­turn even af­ter rein­vest­ing its juicy div­i­dends.

Once the most valu­able US pub­licly traded com­pany, GE now has a mar­ket value of $168 bil­lion, less than a fifth of Ap­ple Inc.

Flan­nery, who took over as CEO on Aug 1, said he was “look­ing for the soul of the com­pany again” and would fo­cus on “restor­ing the oxy­gen of cash and earn­ings to the com­pany.”

He will cut its board to 12 from 18 mem­bers, and bring on three new di­rec­tors early next year.

GE said it al­ready has shed 25% of its cor­po­rate staff, mean­ing 1,500 jobs around the world, in­clud­ing some at its Bos­ton head­quar­ters. It is aim­ing to re­duce over­head cost by $2 bil­lion next year, half of that at its trou­bled power unit that sells elec­tri­cal gen­er­a­tion equip­ment.

The tran­si­tion in­cludes GE get­ting rid of at least $20 bil­lion of as­sets through sales, spin-offs or other means.

“GE will jet­ti­son busi­nesses with a very dis­pas­sion­ate eye,” Flan­nery said, keep­ing only units that of­fer growth, a lead­ing mar­ket po­si­tion and a large in­stalled base.

GE said it would exit its light­ing, trans­porta­tion, in­dus­trial so­lu­tions and elec­tri­cal grid busi­nesses, all of which were widely ex­pected, clos­ing fac­to­ries around the globe. But it was vague about other dis­pos­als.

It plans to get rid of its 62.5% stake in oil­field ser­vices com­pany Baker Hughes, only months af­ter mak­ing the multi-bil­lion dol­lar in­vest­ment.

Flan­nery of­fered no quick fixes for in­vestors. He said power, one of the busi­nesses GE would fo­cus on, was “chal­lenged,” but could be turned around in one to two years.

GE’s Dig­i­tal unit, on which Im­melt bet bil­lions of dol­lars, would fo­cus on sell­ing apps to cus­tomers in its core busi­nesses, Flan­nery said.

He con­firmed that the shift meant sales staff were be­ing let go, as Reuters re­ported last week.

GE also will cut spend­ing on the dig­i­tal unit to $1.1 bil­lion in 2018 from $1.5 bil­lion in 2017. GE had pre­vi­ously said it would in­vest $2.1 bil­lion in its dig­i­tal unit in 2017, but that tally in­cluded money not tied to Predix, GE’s in­dus­trial-in­ter­net plat­form.

Flan­nery said there was “no re­treat on the idea” of GE pro­vid­ing both ap­pli­ca­tions and the Predix plat­form to con­nect in­dus­trial equip­ment to com­put­ers that can make ma­chines run bet­ter. How­ever, get­ting one of its key ap­pli­ca­tions to run on Predix could take two more years.

He added that some of its health­care IT busi­ness, such as soft­ware for imag­ing and hos­pi­tal staff sched­ul­ing, were still crit­i­cal to the com­pany and not likely to be di­vested.

The div­i­dend cut, to 48 cents from 96 cents next year, is only the third in the com­pany’s 125-year his­tory and the first not dur­ing a broader fi­nan­cial cri­sis. It is ex­pected to save about $4 bil­lion in cash an­nu­ally.

GE fore­cast 2018 ad­justed earn­ings of $1 to $1.07 a share, com­pared with its ear­lier es­ti­mate of $2 per share. Wall Street was ex­pect­ing $1.16, ac­cord­ing to Thom­son Reuters I/B/E/S.

GEN­ERAL ELEC­TRIC CO VIA AP

In this handout photo GE CEO John Flan­nery ad­dresses in­vestors at a meet­ing in New York.

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