{"id":1070,"date":"2018-06-27T18:57:22","date_gmt":"2018-06-27T18:57:22","guid":{"rendered":"http:\/\/euromenaenergy.com\/?p=1070"},"modified":"2018-06-27T18:57:22","modified_gmt":"2018-06-27T18:57:22","slug":"ge-exits-health-oil-as-ceo-shrinks-onetime-titan-to-save-it","status":"publish","type":"post","link":"https:\/\/emimer.com\/?p=1070","title":{"rendered":"GE Exits Health, Oil as CEO Shrinks Onetime Titan to Save It"},"content":{"rendered":"<div class=\"lede-text-v2 lede\">\n<div class=\"lede-text-v2__container\">\n<div class=\"lede-text-v2__content\">\n<address><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-1071\" src=\"http:\/\/emimer.com\/wp-content\/uploads\/2018\/06\/620x-1.png\" alt=\"\" width=\"620\" height=\"348\" srcset=\"https:\/\/emimer.com\/wp-content\/uploads\/2018\/06\/620x-1.png 620w, https:\/\/emimer.com\/wp-content\/uploads\/2018\/06\/620x-1-300x168.png 300w\" sizes=\"auto, (max-width: 620px) 100vw, 620px\" \/><\/address>\n<address class=\"lede-text-v2__byline\">By Rick Clough<\/address>\n<div class=\"lede-text-v2__times\"><time class=\"article-timestamp\" datetime=\"2018-06-26T09:57:41.473Z\" data-type=\"updated\" data-status=\"localized\">June 26, 2018, 12:57 PM GMT+3<\/time>\u00a0<span class=\"updated-wrap\"><span class=\"updated-text\">Updated on\u00a0<\/span><time class=\"article-timestamp\" datetime=\"2018-06-26T18:28:55.189Z\" data-type=\"updated\" data-status=\"localized\">June 26, 2018, 9:28 PM GMT+3<\/time><\/span><\/div>\n<\/div>\n<\/div>\n<\/div>\n<div class=\"content-well-v2\">\n<section class=\"main-column-v2\">\n<ul class=\"abstract-v2\">\n<li class=\"abstract-v2__item\">\u00a0Flannery narrows focus again in revamp of U.S. business icon<\/li>\n<li class=\"abstract-v2__item\">\u00a0Company says it will maintain dividend through health spinoff<\/li>\n<\/ul>\n<\/section>\n<\/div>\n<p>This is John Flannery\u2019s General Electric Co. &#8212; and so far, Wall Street likes it.<\/p>\n<p>A year after being named chief executive officer, Flannery took the boldest steps yet to revamp the sinking corporate titan, unveiling plans to pull GE out of the health-care and oil markets. By slimming it down and reorienting around power, renewable energy and aviation, he hopes to breathe new life into the 126-year-old company.<\/p>\n<p>\u201cWe\u2019re refashioning the company at every level,\u201d Flannery said Tuesday in an interview. \u201cIt\u2019s fundamentally positioning the company for the future.\u201d<\/p>\n<p>The overhaul will profoundly reshape an\u00a0icon\u00a0of American business \u2013- albeit one that has fallen sharply from its Jack Welch-era heyday at the turn of the century. When Flannery\u2019s done, GE will bear little resemblance to the conglomerate that once counted NBC, home-appliances, plastic, locomotives and a sprawling finance unit among its operations.<!--more--><\/p>\n<p>This is John Flannery\u2019s General Electric Co. &#8212; and so far, Wall Street likes it.<\/p>\n<p>A year after being named chief executive officer, Flannery took the boldest steps yet to revamp the sinking corporate titan, unveiling plans to pull GE out of the health-care and oil markets. By slimming it down and reorienting around power, renewable energy and aviation, he hopes to breathe new life into the 126-year-old company.<\/p>\n<p>\u201cWe\u2019re refashioning the company at every level,\u201d Flannery said Tuesday in an interview. \u201cIt\u2019s fundamentally positioning the company for the future.\u201d<\/p>\n<p>The overhaul will profoundly reshape an\u00a0icon\u00a0of American business \u2013- albeit one that has fallen sharply from its Jack Welch-era heyday at the turn of the century. When Flannery\u2019s done, GE will bear little resemblance to the conglomerate that once counted NBC, home-appliances, plastic, locomotives and a sprawling finance unit among its operations.<\/p>\n<p>The new GE won an early embrace from investors. The shares surged 8.5 percent to $13.84 at 2:12 p.m. after advancing as much as 8.9 percent for the biggest intraday gain in three years.<\/p>\n<p>The announcement clears away lingering concerns over GE\u2019s debt while laying out a plan to monetize several major assets, said Nicholas Heymann, an analyst with William Blair &amp; Co. The moves will also help GE weather the storm in the gas-power market until it begins to improve in a few years, he said.<\/p>\n<p>\u201cIt\u2019s the escape from the Alamo,\u201d he said. \u201cYou\u2019re basically reconfiguring the company to bring forward the value-creation opportunities.\u201d<\/p>\n<p>Still, as the Boston-based manufacturer struggles with cash flow issues and weak demand for equipment such as gas turbines, it\u2019s far from recovered. GE fell 27 percent this year through Monday, following a 45 percent decline last year &#8212; a slump that led to GE\u2019s\u00a0<a title=\"GE\u2019s Fall From Dow Grace Heralds New Era for Beaten-Down Giant\" href=\"https:\/\/www.bloomberg.com\/news\/articles\/2018-06-20\/ge-s-ouster-from-dow-to-put-more-pressure-on-beaten-down-giant\" target=\"_blank\" rel=\"noopener\">removal\u00a0<\/a>this week from the Dow Jones Industrial Average after more than 100 years.<\/p>\n<h3>Trian Applause<\/h3>\n<p>Trian Fund Management, which holds a stake in GE and has a seat on the board, said it welcomed the moves. \u201cTrian supports the strategic initiatives announced today by GE and believes that these initiatives will create substantial value for shareholders,\u201d the fund led by investor Nelson Peltz said in an emailed statement.<\/p>\n<p>GE will narrow its focus to power, renewable energy and jet engines, according to a company\u00a0statement. It will spin off its medical-equipment business and sell its majority stake in oilfield supplier Baker Hughes.<\/p>\n<p data-tout-type=\"story\">GE Gives Investors a Breakup. That\u2019s a Start: Brooke Sutherland<\/p>\n<p>\u201cWe have argued for the full breakup of GE and we pretty much have that \u2013 at least a realistic version of that,\u201d Scott Davis, an analyst at Melius Research, said in a report. The health-care division is \u201ca solid asset\u201d and \u201cwhat will remain at GE will largely be an aerospace business and a power business.\u201d<\/p>\n<p>GE plans to reduce net debt by about $25 billion by 2020. The company said it would maintain its dividend through the health spinoff. After that, GE \u201cexpects to adjust the GE dividend with a target dividend policy in line with industrial peers.\u201d<\/p>\n<h3>Dividend Risk<\/h3>\n<p>Payouts in health care are typically lower, so the combined dividend between GE and the spinoff will probably be less than current levels, Flannery said. Investors have been bracing for a possible cut as GE\u2019s condition has deteriorated. The CEO already reduced the payout in November, a painful blow to the many investors who have come to rely on the steady income.<\/p>\n<p>\u201cThe dividend will likely be cut materially,\u201d Steve Tusa, an analyst at JPMorgan Chase &amp; Co., said in a note to clients. \u201cThis is also ultimately a de facto equity raise and dividend cut when all is said and done.\u201d<\/p>\n<p>But the dividend announcement may be a relief to some investors. The payout won\u2019t disappear completely, and a potential cut will only happen in line with the move to spin off the health unit, Heymann said.<\/p>\n<p>S&amp;P Global Ratings put GE\u2019s A rating on a negative credit watch, saying it expects to downgrade it one notch to four levels above junk when the health spinoff is completed. Moody\u2019s Investors Service reaffirmed its comparable A2 rating and said the moves were a positive step for GE\u2019s credit.<\/p>\n<h3>Board Switch<\/h3>\n<p>GE said Larry Culp would take over as lead director. Culp, a former Danaher Corp. CEO, joined the board earlier this year.<\/p>\n<p>Flannery\u2019s latest moves cap a strategic review he has been pursuing since taking the helm last year from Jeffrey Immelt, while effectively marking his second attempt to present a turnaround to investors. In November, Flannery\u00a0unveiled changes\u00a0including asset sales and a board overhaul, while saying the GE of the future would revolve around the energy, aviation and health-care markets.<\/p>\n<p>More Power, Less Capital<br \/>\nGE Capital&#8217;s contribution to total revenue has disappeared in the last decade<\/p>\n<p>That generated criticism from investors who called the steps insufficient, and the shares continued to fall. Early this year, after GE detailed worse-than-expected problems with insurance liabilities, Flannery promised to explore bigger changes, including a possible breakup.<\/p>\n<h3>Following Siemens<\/h3>\n<p>Since then, Flannery has agreed to unload GE\u2019s century-old locomotive operations. On Monday, he announced the sale of an industrial-engine business to buyout firm Advent International. Immelt sold most of GE\u2019s banking and consumer operations.<\/p>\n<p>Under the plan unveiled Tuesday, GE will sell 20 percent of the health business and spin off the rest to its shareholders tax-free. The health business makes imaging machines and other hospital equipment.<\/p>\n<p>The exit from health care mirrors a similar move by\u00a0Siemens AG, the German industrial giant that\u2019s dramatically simplified its conglomerate structure in recent years.<\/p>\n<p>The Munich-based manufacturer, which competes with GE in areas such as power-generation and medical scanners, sold shares in its Healthineers subsidiary in March, marking the country\u2019s second-biggest initial public offering in almost two decades.<\/p>\n<h3>Shrinking Finance<\/h3>\n<p>The U.S. and European manufacturing titans have historically tracked each other\u2019s business closely, with close competition in power turbines, household appliances, medical devices and light bulbs. Siemens today is a far leaner business than it was a decade ago, having cut ties with some historic assets such as its communications business and the Osram light-bulb business.<\/p>\n<p>GE plans to \u201cmaterially shrink\u201d the balance sheet of its finance arm, GE Capital, targeting the sale of $25 billion in energy and industrial finance assets by 2020. The company also is exploring options to reduce its insurance exposure. GE shocked investors this year with a $15 billion shortfall in insurance reserves. It also disclosed an accounting investigation by the U.S. Securities and Exchange Commission.<\/p>\n<p>The exit from the Baker Hughes stake &#8212; to occur over the next two to three years &#8212; will end GE\u2019s brief, rocky tenure in the oil and gas market.<\/p>\n<p>GE began an aggressive expansion of its crude operations in 2007 with the $1.9 billion acquisition of equipment-maker Vetco Gray, building on a small set of assets. Over the next seven years, GE shelled out more than $10 billion on additional deals, buying companies such as Wellstream and Dresser.<\/p>\n<p>Just as GE Oil &amp; Gas was becoming one of the company\u2019s most prominent businesses, the market collapsed. The price of crude plummeted more than 60 percent over 2014 and 2015. With demand down sharply, the division has weighed on GE\u2019s financial results.<\/p>\n<p>What\u2019s more, GE\u2019s oilfield offerings were still limited compared to its rivals, constraining growth in the event of a recovery. Under Immelt, GE agreed in 2016 to join forces with Baker Hughes, creating a more-formidable player with a robust product lineup that would be better able to compete with industry leader Schlumberger Ltd.<\/p>\n<p>That didn\u2019t last long. Flannery said shortly after taking over last year that GE would explore options to get out of its 62.5 percent stake, without committing to a formal exit plan.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>By Rick Clough June 26, 2018, 12:57 PM GMT+3\u00a0Updated on\u00a0June 26, 2018, 9:28 PM GMT+3 \u00a0Flannery narrows focus again in revamp of U.S. business icon \u00a0Company says it will maintain dividend through&#8230;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[46,57,90,96,107,137,139,174,201,202,209,232,233,244,246,249,256,277,279,288],"class_list":["post-1070","post","type-post","status-publish","format-standard","hentry","category-uncategorized","tag-aramco","tag-baroudi","tag-democracy","tag-doha","tag-embargo","tag-gas","tag-gazprom","tag-lebanon","tag-offshore","tag-oil","tag-opec","tag-putin","tag-qatar","tag-rosneft","tag-roudi","tag-russia","tag-saudi","tag-total","tag-trump","tag-usa"],"_links":{"self":[{"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/posts\/1070","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1070"}],"version-history":[{"count":0,"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/posts\/1070\/revisions"}],"wp:attachment":[{"href":"https:\/\/emimer.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1070"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1070"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1070"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}