GE draws up road map to salvation
Shareholders appear resigned to divident cut, the first since 2009
Iconic American industrial behemoth General Electric, which has lost investor confidence amid bad investment decisions, is preparing to slice up its empire again, selling major business segments and laying off thousands.
Hammered by financial markets, with its market capitalisation down more than $100 billion (Dh367 billion) since January, the maker of jet engines and power turbines is paying dearly after making losing bets that the energy sector, in particular oil and gas, would grow indefinitely.
Shareholders appear resigned to a cut in dividends, the first since 2009, as GE had only $7 billion in cash flow at the end of September, but was due to pay out $8 billion.
“There is no scared cow,” newly installed CEO John Flannery has said repeatedly about the need to cut costs and restructure. To rebuild trust, Flannery, who has been CEO for only three months, will roll out plans to revive the company today.
Deutsche Bank analyst John Inch said there was no way sugarcoat the situation.
“They have a crisis of investor confidence,” he said. “GE is in a cash crunch.”
Scott Davis of Melius Research put it even more starkly, calling the company “disgraced” and saying it “needs to clean house as fast as possible.”
Flannery took the helm after 16 to years of leadership by Jeff Immelt, who sold off GE’s stake in TV and movie giant NBCUniversal as well as its household appliance segment and much of its banking and finance business.
The newly-installed GE chief will unveil another austerity plan that will include significant layoffs, according to a source who spoke on condition of anonymity. The power generation business GE Power will be particularly hard hit.
The belt tightening follows a $2 billion cost-cutting programme that already had seen staff levels fall 11 per cent to 295,000 over the course of last year. GE also is likely to close its research and development centres in Shanghai, Rio de Janeiro and Munich, leaving the company with R&D facilities only in New York and Bengaluru, India.
The company declined to answer queries on the plan, but in mid-October Flannery told CNBC: “It’s a pretty straightforward thing that we have to tighten the belt.” The company expects to cut more than $2 billion in additional costs, according to another person familiar with the matter.