General Electric Company (NYSE:GE) on Monday did what many had openly hoped for during the past few years — it sacked CEO Jeff Immelt. The industrial conglomerate is installing GE Healthcare head John Flannery at the top, and GE stock holders are celebrating with a 3% move north in morning trade.
GE acted like this was all part of a carefully orchestrated plan. Senior vice president Susan Peters, who heads human resources, wrote a long post on LinkedIn about the process taking place over five years.
Immelt had been running General Electric for 16 years, and the average GE CEO served 12.5; consider that the average S&P 500 CEO serves 8.8. But the move looks rushed, both because it came suddenly and after a much less transparent process than the one that was used to select Immelt himself.
Activist investor Nelson Peltz, who took a $2.5 billion stake in the company in late 2015, had reportedly begun pushing for Immelt’s removal in March. GE stock was down 11% in 2017 before its pre-market pop.
What’s Wrong With GE Stock?
Immelt transformed General Electric from a highly profitable entertainment and financial company into a marginally profitable industrial company. He became CEO four days before the Sept. 11, 2001, attacks, with the stock at more than $39 per share. The stock’s high point came in 2007, just before the economic collapse, at $41.40.
GE stock has tripled, however, since its post-crisis 2009 low of $8.31. The company has become a dividend machine, with a yield of 3.44% based on its closing price June 9. Overall, though, shares are down 38% under Immelt, while the value of the S&P 500 has doubled.
The problem is that, as I wrote in May, while Immelt has transformed the company, the result tastes like ashes. As I wrote in April, urging he be removed, “Everything he touches turns into tin, and what he lets go turns at least into silver.”
His last big move — combining the company’s oil and gas unit with Baker Hughes Incorporated (NYSE:BHI) — may yet pay off if oil prices rise, but the resulting company is a collection of parts. Most of those parts are engines that find fossil fuels or burn them, despite Immelt proclaiming his company a renewable energy leader. Our Vince Martin calls it a problem investment.
What Comes Next?
While Flannery is being given credit for improvements at GE Healthcare, which is based in the company’s headquarters city of Boston, he spent most of his career at GE Capital, evaluating risk. He also has extensive experience in Latin America.
And his first move might be to break the company up.
The oil and gas business under Lorenzo Simonelli can operate on its own. The light bulb division, which the company says it wants to sell, could be combined with GE Current and spun off. The Internet of Things cloud, called Predix, might look nice inside partner Dell, whose VMware, Inc. (NYSE:VMW) unit helped birth it.
What Would Remain?
The leftovers would include the healthcare unit Flannery already runs, the aviation and power businesses, GE Capital and some units in things like renewable energy and 3D printing. That’s plenty with which to wheel and deal.
Flannery might separate the power and aviation units out from healthcare, or use them as a base with which to rebuild General Electric in his own image. GE stock rose June 12 because investors see there is money to be made splitting the company into its component pieces.
But at 55, Flannery is much older than Immelt was when he took over. He does not have the traditional 12.5 years that Peters says GE CEOs get to engineer a radical transformation of the business, given the company’s traditional retirement age of 65.
My guess? Flannery might be the last general of anything recognizable as General Electric.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
