For more than a decade we morphed NBC into a $45 billion business. Over that same period from 1996 to 2009, General Electric created and lost $530 billion to catastrophes, industry blowups, and unfortunate timing in investments and core businesses. During that period, GE’s stock price soared from $7 a share to nearly $60 a share in Jack Welch’s best days before crashing back to $7 a share in 2009 and then settling into the mid-$20s. It was one of the greatest cycles of value creation and destruction of all time.
In the end, three almost simultaneous disasters—a housing and financial crisis in 2007–2008, an energy and insurance bust, and the 9/11 terrorist attacks—drove GE to lose nearly twice as much as the value wiped out by AOL Time Warner’s ill-fated merger, which was thought to be the priciest faux pas in US mergers and acquisitions.
Then, to make matters worse, GE forfeited more than $10 billion of the value we created when it undersold NBC Universal to Comcast in 2011. GE was already reeling from huge losses in reinsurance, power generation orders, airline travel, and mortgage-backed securities. So, fearing digital media would become just another imploding investment and needing cash to restore GE Capital, the company decided to make a quick exit. The timing was dreadful. Comcast paid $30.5 billion over 2 years—about $15 billion less than NBC Universal’s street value in 2006!
These complex dynamics were rarely considered in their entirety and easily missed by Wall Street and the press. But understanding what was going on at General Electric during NBC’s transformational decade (1996–2006) helps explain some of the menacing twists and turns we encountered. Looking back now, it seems very much like the agonizing Inferno voyage that thirteenth-century Italian poet Dante Alighieri graphically described in The Divine Comedy.
Only this was a financial hell of GE’s own making.
That’s not what you’d expect from a conservative conglomerate consumed by process and methodology. And yet GE played some heavy investment roulette, most of it through GE Capital financial services with the goal of making greater returns outside its more predictable core industrial assets.
GE Capital grew so large it quickly contributed half of GE’s earnings, some of which were used to fuel its investment engine. So when some of those investments crashed, they dragged down GE’s overall worth. Jack Welch was applauded for these bold bets—before some collapsed when he retired and turned into a nightmare for his successor, Jeff Immelt.
You could say Jeff Immelt was doomed from the start. His first official day as the new announced president CEO was September 11, 2001, even though he had been president for 9 months. GE’s jet engine business had been at an all-time high in orders when the 9/11 tragedies brought all commercial aviation to a grinding halt. Power generation and jet engine orders, and consumer air travel were way off for 2 years. That’s the kind of black swan that can’t be anticipated, but it just killed us. GE stock traded as low as $22 a share. There was no plan B.
But the airline losses weren’t the only problem. GE’s stock price hit a record high of $59.88 per share September 8, 2000, after public utilities were deregulated. When Enron created a supply and demand energy bubble, GE followed it down the rabbit hole, which turned out, instead, to be a sinkhole. Enron and its top executives were taken down in the 2001 scandal, while GE lost billions of dollars on canceled orders, despite the valiant efforts of John Rice, Bob Nardelli’s successor as head of power generation. The combined fallout from that scandal and the effects of 9/11 put too much pressure on GE’s financial services and exposed a huge weakness in GE’s reinsurance program. Anchored by Employers Reinsurance Corp. (ERC), that was the next business to self-destruct in a blaze of controversy and losses.
Immelt spent every day from 2002 to 2006 trying to get GE out of the insurance and reinsurance businesses, which turned out to be more volatile, capital intensive, and slow growing than anticipated. In 2005, GE finally spun off $2.8 billion of its insurance assets into the publicly traded Genworth Financial and made a separate $6.8 billion sale to Swiss Reinsurance Co. in 2006. GE, arguably, should never have been in the international reinsurance business.
GE barely had time to catch its breath before the US housing market deflated, vaporizing the value of its mortgage-backed securities. The timing could not have been worse. By 2008 and 2009, GE’s financial services arm was racking up $32 billion in losses.
We should have been more skeptical of the housing boom and of the Internet mortgage business GE Capital invested in. For instance, in 2004, GE bought California subprime lender WMC Mortgage Corp. for $500 million—and eventually lost more than twice that. GE became so enamored of the online mortgage industry in California and in Texas in 2007 that it failed to see there was some real sloppiness going on at companies it funded. It was borderline fraud. When we started looking deeper, we realized many of the people getting mortgage loans online were unemployed and unable to make their payments.
When the real estate market crashed, GE was holding $50 billion in paper profits that went up in smoke. We were too slow liquidating our commercial real estate positions while the federal government demanded that wholesale banks like GE Capital reduce their risk and holdings.
On top of all that, GE shot itself in the foot with the decades-long multibillion-dollar dredging of New York’s Hudson River to clean up 1.3 million pounds of polychlorinated biphenyls (PCBs) and other toxins that had been flowing from two GE plants for 3 decades, until banned in 1977. We thought adequate reserves were on the books years earlier. Not so.
When the dam finally burst, GE was confronted by too many major gushes that compromised its structural and financial integrity. NBC’s media investments were among the bright spots. We were betting on a cable and digital future, staying out of GE’s sights while we made it happen. Soon we had $30 billion in cable network value that dwarfed its broadcast TV properties.
Originally GE thought it was getting a stable subsidiary in NBC that would generate reliable cash flow to reinvest in GE Capital’s new ventures. And for a long time, that was true. But there were a lot of things going on in media involving new technology that were about to challenge the broadcast business. When GE paid $6 billion for RCA in 1986, NBC’s market value was about $2 billion. By the time cable giant Comcast bought it 25 years later, it was worth about $40 billion, with most of that rooted in cable television. That’s the awfulness of it. I can’t let the $30 billion Comcast paid for NBCU be the defining number for me. We were worth as much as $45 billion and generating $4 billion in pretax earnings just 2 years after the NBC and Universal merger closed in May 2004. That’s the number.
Here’s the bottom line: while GE’s fortunes fell, NBC’s fortunes rose—but we were reduced to a footnote on the conglomerate’s ledger as a core subsidiary buried under all of GE’s bad business news.
◆ Steve Burke, president Comcast Cable, then chairman CEO NBC Universal, 2009–present. The most striking thing about NBC the last 10 years under GE ownership was the huge amount of value that was created through strategic acquisitions. Virtually all of the assets acquired when Comcast bought NBC Universal in 2009 were added during that last decade. The value of what we really bought was created outside of the NBC TV networks and stations. In fact, it would be difficult even now to calculate the value of those original core businesses if NBC had not undergone that transformation.
But it would be a very small fraction and we might not have been interested in purchasing NBC at all if that’s all that was there. The NBC we bought had 100 percent of its earnings come from the cable channels, which is remarkable considering that CNBC has only been around 25 years and MSNBC half that time. The big bang was the NBC Universal deal in 2004, not just because NBC gained control of a film studio and theme parks, but it brought the powerhouse cable channels USA and Sci-Fi. That was the real master stroke by Bob in the amount of value that was added and the way the deal was structured. ◆
The ultimate irony was that GE’s freefall coincided with the strongest programming NBC ever had in news, sports, and entertainment. We were able to double down on the financials. It was NBC’s turn to look brilliant after maneuvering through a minefield of poor ratings and press in the early 1990s. Today, NBC Universal is generating $4 billion-plus in free cash flow for Comcast, which is what our peak was years ago.
The real story here for me is how people built that much value at NBCU—a high-profile, privately held media company—inside a large, controlling public conglomerate with rigid guidelines, a very different agenda, and complicated internal politics. Our goal was to create something much more significant for the times, even though GE did not always make it easy.
I compare it to swimming across the English Channel. You are almost halfway across and you’re exhausted. Now, do you go forward or backward? That situation happens in business all the time. You argue about whether you are halfway across or doubling down on a bad investment. If you are only a third of the way across, and you are tired, you might go back. If you are 65 percent of the way across, some people will still argue to go back, but you have a stronger case to try to finish.
GE was afraid of digital TV. GE found itself halfway across the channel and decided it was going to cut its losses and go back before it could realize a full return on its media investments. We had to expand, and when we did it became a different business, not something GE could understand or wanted to be in.
During 2009/2010 all media was in the tank. Ad sales were in a bad cycle and investing was greatly curtailed. It was a perfect time for private equity and hedge funds to get in just as established companies were tied up in knots and selling assets at bargain prices.
That’s how Comcast picked up NBCU at a modest price with a structure that initially kept it off of its own books while repositioning NBCU in a digital world. GE decided to sell NBCU to Comcast by giving up 51 percent majority control (less than 2 years later, it sold the remaining 49 percent). Comcast assumed debt, which restricted the income, but it knew what to do with NBC’s treasure trove of content. So GE said, “Let’s take a ride on this thing with Comcast before we take it off our books; maybe we can get something more out of it.” GE reported NBCU as a discontinued business nobody cared about, just to get it done and get out.
That is the same indifference that prevailed when the top forty leaders of GE’s executive council were clueless about the promise of portable digital technology and summarily dismissed an opportunity to buy into Apple in 1996. At that time, the late Steve Jobs had been absent for 10 years from the company he’d founded, having been ousted by his own board. He would return by early 1997 to lead Apple through historic growth and changes in technology. Michael Spindler, Apple’s then CEO, attended one of our corporate executive council’s regular meetings to propose that GE make a strategic investment in his company. At the time Apple stock was trading around $20 a share and its $30 billion market cap was a fraction of GE’s $400 billion. Spindler was in trouble and almost tearful with sweat rolling off his face. Nearly everyone thought Apple would curl up and die. But that’s precisely when you want to buy into a company with promise—when it’s down. We would have looked brilliant! Apple’s market cap topped at $775 billion in February 2015; GE topped out at nearly a $600 billion market cap in September 2000. GE had already struggled with robotics and didn’t have any stomach for personal digital electronics.
◆ Brandon Burgess. The businesses we acquired from 2000 to 2005 transformed NBC into a completely different thriving company anchored in cable television, movie studios, and theme parks. These were businesses GE swore it would never get into even though the payoff was huge. The merged NBC Universal generated three times the earnings as the old NBC. NBC’s legacy broadcast-based earnings had already been slashed in half to about $1 billion by 2000, ebbing and flowing with the fortunes of the NBC TV network and stations.
Cable and early digital media were center stage. We advanced our hand in those areas, acquiring Universal for $12 billion paid out over 5 years, Telemundo for $2.7 billion, Bravo for $1.2 billion, and even the new San Francisco–area affiliate KNTV for $230 million. The synergistic fit of these acquisitions with NBC’s assets and the creative structure of the deals resulted in $30 billion in new shareholder value. Everything went up: revenues, profits, return on investment, stock price, and market cap. We created a well-timed strategic and operational hedge around a US broadcast business under pressure. Just as NBC’s core broadcast earnings were falling to near zero, the annual earnings of the newly created NBC Universal reached $3.6 billion, including the 20 percent ownership of Vivendi. Although GE was the primary beneficiary, NBC no longer was a company it was comfortable with or understood.
When GE handed off all of that $30 billion intrinsic value to Comcast in 2011, it no longer viewed NBC as a critical cash flow source for its outside financial investments, which had radically altered. For a while in the 1980s and 1990s, GE reinvested the cash flow from NBC’s broadcast TV network and stations in GE Capital ventures and new businesses that yielded 15 to 20 percent return on capital compared to the single-digit returns in media. GE always provided the semblance of stability and gave us the funds for growth acquisitions—Universal being the most important.
If we had not transformed NBC’s asset portfolio when we did, the way we did, the company would be in a very different situation today and most likely would not have been acquired by Comcast. It would have become dead weight for GE. ◆
GE responded to external threats and challenges to its businesses the way a lot of big companies do. They think they can avoid being impacted by some major global issue, which is not the case at all. That has more to do with arrogance than with negligence. We didn’t do anything wrong, but when the rules started to change, GE thought it could get by with the only approach it knew. But it became less adept at anticipating or being able to offset those troubles because of the number of high-risk bets it was making and so many factors out of its control. GE did not move quickly to revise its operating dynamics and sensibilities, even when it ventured far outside of its core businesses. It continued to behave like an industrial production giant in its heyday, even as the world economy was moving in a different direction.
All of this was compounded by Jack Welch’s two missions: to secure a high stock price and market cap for GE and to protect his legacy. GE Capital’s far-reaching investment portfolio was one way he sought to achieve both. Making a failed bid for rival Honeywell in his last extended year before exiting GE was another. Worse yet, we sat on billions of no-growth or low-growth assets that severely constrained our return on investment (ROI) and return on equity (ROE). Getting that off the books was a P&L (profit and loss) discussion that got postponed forever.
It became a case price/earnings ratio woulda, shoulda, coulda.
When the stock P/E (price-earnings ratio) exceeded 25 and ran to a P/E of 40 between 1997 and 2000, GE should have used its stock for acquisitions while writing off dead, weak, or low-yielding assets. At a P/E of 30, we should have been examining why the P/E was so high and whether there were serious bubble issues emerging. We should have paid more attention to major regulatory changes between 2002 and 2004. Sarbanes-Oxley screamed for transparency. Write-offs were suddenly expected and tolerated by analysts. We should have refreshed our board of directors regularly before and after the energy and housing bubbles. We should have done a deep dive on GE capital asset risk and returns between 1996 and 2002.
Put another way, when we were rising up from 1995 to 2000 it was like waiting to board the Queen Mary 2. GE and many other public companies saw valuations go higher as all boats rose with the tide. Most corporate CEOS looked like managers of the century for a while. By 2001, we actually discovered we were on the Exxon Valdez! It turns out we were sailing around the world in a 1,100-foot tanker bleeding oil all over the place. We were sailing an entirely different ship until as late as 2009, and it was literally like voyaging through hell with no life jackets. It was like Dante’s Inferno, and it was just awful!
Directors are there to protect shareholders’ interests and bear responsibility when there are adverse impacts on shareholder value. Directors must pay attention to significant increases in shareholder value as measured by the P/E ratios. A P/E ratio over 25 for a large established company needs careful examination. When a P/E exceeds 30, directors should be discussing the reasons why the P/E is so high and whether there are serious bubble issues with the stock.
The GE board of directors—and I was one of them—should have provided a backstop to senior management on all of this. And for a lot of complicated reasons, that didn’t happen. Anyone sitting on the GE board of directors, as I did through the end of the 1990s until 2008, had to assume responsibility for the unraveling of some businesses and GE’s plunging market cap. The board should have been more vigilant about investments in reinsurance, mortgage-backed securities, and other areas new to our portfolio even before they started going south. We should have dumped or written off assets that weren’t producing income and were hurting ROI.
Instead, we moved from crisis to crisis, with no inclination to examine the big picture and consider whether the problems were in fact bigger and deeper than they appeared. The drill was to put the fire out, insulate the rest of GE’s businesses, and move on with only limited acknowledgment of what went wrong. An earlier course correction could have saved GE a lot of money and grief.
Overall, from 1996 to January 2009, GE created and lost $530 billion in value, in part because the board of directors and senior management failed to accept responsibility for reining in and reversing failing or threatened investments. We underestimated the lingering impact of the 9/11 terrorist attacks and GE’s overall vulnerability. Nobody would have thought it was possible for GE’s market value to fall from a high of $600 billion to as low as $70 billion at one point—the greatest loss of market capital in business history.
GE tanked when it lost control. The primary reason for inaction by the GE board and senior management was an unwillingness to recognize losses and promptly deal with them. We did everything possible to avoid taking losses when a business was not doing well, and just kept plugging away at it. We would change managers or marketing campaigns. It was all about absorbing the pain of not doing well for as long as they could before taking a write-off.
The fact is the GE board was seduced by GE Capital’s financial promise of making money in areas that were free of the costs, accountability, and long-range goals that encumbered our other operations. GE directors were so hungry for GE Capital’s earnings, they didn’t want to take 10 percent of those earnings off the table to buy hedges to businesses that could have lapses.
The same thing happened with NBC. GE wanted NBC’s cash flow, but it didn’t necessarily want to reinvest in the company to build replacement businesses that would generate new cash flow. When we grew the broadcasting network into cable, it was like pulling teeth. American businesses right now spend most of their time planning one or two quarters. They don’t have the time or energy to map out how they would like to see their businesses 10 years from now in the context of bigger changes. Many of the matters that became controversial for GE were handled the old-fashioned way at the outset and then wrestled with in the era of Sarbanes-Oxley, which required more public accountability and transparency.
For instance, we never had any serious discussion with the GE board at any meeting I attended about alternative ownership for NBC or about opportunities to deal with private equity. That was thinking too far down the road. That was a lost opportunity to generate value for shareholders. So many of the board deliberations about GE’s relatively new business investments were more a review of the numbers than a debate about the macro industry threats to these businesses.
This is a chronic problem in business. Chief executives need strong board members when the stock is on the way up and strong board members when it’s on the way down—and they should not be the same people. In both cases you should have board members who are not burdened by the past and are focused on the present to grow the stock and mitigate significant losses.
It is the responsibility of the board to protect shareholders’ interest as well as the integrity of employees’ rights. It is a very broad agenda.
When you are an established company and your stock hits a P/E ratio over 30, you’re likely headed into a bubble. That is a time to celebrate; have a party, sell some stock along with executives, employees, and board members and start preparing for the end of the bubble. That’s when the CEO should be moving board members out who have been a strong part of the bubble and moving new board members in who can deal with the downside. This generally doesn’t happen or get enough attention.
There is no natural churn on boards, which should occur about every 7 to 8 years, aligning with the average length of time of the CEO. That would have been helpful if we at GE had encouraged longtime board members to follow Welch out the door and replace them with new board members better prepared for the enormous downside that followed. It would have created a natural check and balance. One of the reasons hedge funds and private equity exist is that established corporations love to buy at the top and sell at the bottom. Hedge funds and private equity do just the opposite!
◆ Ann McLaughlin Korologos, former chairman Rand board and Aspen Institute; US Secretary of Labor 1987–1989, director on numerous boards including GM and Microsoft. Before we were fellow directors on the Rand Corporation board, Bob Wright and I were friends bound by tumultuous events in corporate governance. I had served most of my adult life on corporate boards of all shapes and sizes. I was on the General Motors board of directors in the 1990s when it wrestled with the aftermath of NBC’s Dateline report that threw the carmaker’s integrity and product quality into question. So when I watched from afar as one crisis after another rocked GE, I understood what my friend was going through.
What caught my attention most was when Jack Welch got into trouble pressing for exorbitant retirement benefits, like his unlimited use of the GE corporate jet for life. Even at that point in his legendary career, I thought that was wrong. I don’t know how it passed the red face test. Shame on boards who allow that kind of CEO-itis to run rampant. Some boards confuse what is illegal and what is just plain wrong. Jack Welch broke no laws by asking, but seriously considering some of the excesses he wanted was wrong.
That’s why it’s so important for boards to have a “Rules of the Road” governing the behavior and expectations of its members—yes, even CEOs—so there is no question how they should conduct themselves. You can have tremendous talent and tremendous wisdom on a board. But without firm expectations and mandates governing boards, individual members cannot focus on matters at hand and make a difference.
I’m not sure GE ever valued its board that way. You have to look at a board the way you should look at a company. It’s about people first and foremost, and inspiring them with leadership to meet challenges. ◆
The Poinsett Club
Greenville, South Carolina
October 29, 2000
There is no doubt Jack Welch’s stranglehold on the GE board of directors and his distraction with selecting his successor played a part in shaping GE’s and NBC’s changing strategies and fortunes at the beginning of a new millennium. And Jeff Immelt and GE struggled with the consequences many years after Jack left.
That all came to a head one Sunday night in the historical, stately, colonial trappings of one of America’s first private clubs. It was supposed to be relaxed cocktails and dinner at the Poinsett Club that would transition GE board members from their annual Augusta National Golf Outing late that week to the serious business of a special board meeting Monday to vote on who would be GE’s new chairman CEO. But the social event turned tense as Jack turned the post-dinner talk into a makeshift discussion about succession. His goal was to address head-on the schism that had suddenly developed among board members about whether Jim McNerney or Jeff Immelt (Jack’s personal favorite) should lead. Jack wanted everyone on the same page before the next day’s critical succession vote.
Eighteen months earlier, Jack had created a horse race for CEO with three of GE’s top business division leaders: Jim McNerney (aircraft engines), Jeff Immelt (medical systems) and Bob Nardelli (power systems). He said he would carefully evaluate all of them and then make a recommendation to the board. Prior to Greenville, I met with Jack and asked where he stood. He said Immelt was his choice and asked if I would support that call. I said yes because Jack had enormous contact with all three and was a good evaluator.
Although Welch had been playing his cards close to the vest, I was surprised because I had thought that he had orchestrated the succession plan he wanted and that the board vote was just a formality. Deciding to have the October 30 board meeting at the Greenville manufacturing plant of GE’s robust power generation business appeared to be a cordial nod to Bob Nardelli, the third and least likely CEO candidate.
Everyone was already rattled by Jack Welch’s abrupt decision to remain GE’s chairman CEO for another year rather than stepping down at age 65 in September 2000. The merits of his unilateral decision will long be debated. In hindsight, Jack staying on longer really wasn’t a good idea. He kept pushing out the dates for his retirement partly because it was what he wanted to do, partly because he was wrestling with succession, and partly, I suspect, to allow him time for one last deal. I believe he recognized that GE needed a big acquisition to maintain its share price, and unfortunately he chose Honeywell as his best solution. So he tried selling the board on the notion that they couldn’t operate without him. That’s some of the spin that happened with succession planning, so that it became more emotionally charged and complicated than it should have been.
I was named vice chairman of GE at age 57 in late 2000 with the understanding that I would not succeed Jack as GE chairman. It was a kind of consolation prize for me that eventually carried with it more liabilities than perks, and a huge diversion from the aggressive growth moves I continued to make as NBC chairman CEO. I was expected to be a devil’s advocate and, sometimes, the voice of reason in the candidate assessments and selection of his successor. It ultimately cost me my career-long friendship with Welch, especially when it came to his divorce and his controversial GE exit package. (More on that in Chapter 20.)
As it turned out, I played a key role in shifting board sentiment in Jeff Immelt’s favor that night before the succession vote. Jack seemed to be uncommonly nervous during dinner. Without any chitchat, he began an informal discussion about succession. There was certain uneasiness in the room. Jack unexpectedly turned to me and asked me to discuss my choice for a new chairman and my rationale. Suddenly I was being thrust into the role of kingmaker with no time to think. I said I thought all three candidates had terrific talents but in the end it really was a choice between McNerney and Immelt. While in my opinion both were extremely qualified, I recommended that Immelt be appointed. Jack gave a sigh of relief. My comments seemed to cut short any debate on the matter. Jack may have preferred Immelt because he was the youngest candidate and therefore could have a long run at GE, like Jack’s 20 years. Jack liked the medical business that Immelt oversaw and felt he possessed the solid mind and skills to handle GE’s diverse business interests.
Even the next day, there was tension and hesitation in the room as different directors took the floor to speak on the behalf of one of the three CEO candidates. And then Jack spoke, as if to get everyone on his team. I may have been the honest broker and the deciding vote in the matter—I just don’t know. I recognized that Immelt was Jack’s candidate, and part of my role was to be supportive. So when Jack asked me to second Immelt’s nomination, I did. But no one was bending my arm.
The special board meeting ended with the selection of Immelt. Jack made a point of speaking to the two other CEO candidates. There was an excitement about what was going to take place over the next 3 or 4 days. I wonder now how Jeff feels, given the misfortunes that have defined his tenure. Although most were not of his making, Immelt—like all chief executives—can be judged not so much by what happened on his watch as by his response to it.
In hindsight, I think McNerney probably would have made a better chief executive for GE. After overseeing GE’s powerful aircraft engine business, he went on to distinguish himself the most of the three CEO candidates as chairman CEO of 3M and later of Boeing. But he would have wrestled with the same issues as Immelt. The big difference is that Immelt was too beholden to Jack. Jack was always protecting and advancing his own legacy, even after he left the company, and he did that through Jeff. Immelt was somewhat naïve and grateful for the CEO appointment. Long after Jack had left, Immelt kept enhancing Jack’s reputation, which was not a positive thing to do. He was given a whole year to figure this out, and he didn’t.
My intricate involvement in shaping GE’s post-Welch fate seems a little peculiar in hindsight. I had often moved against the grain at GE, advancing NBC’s contrarian agenda. NBC was a star performer in the second half of the 1990s into the 2000s and was at the peak of its success when GE was having a terrible time. That dramatic contrast in value created and destroyed at NBC and GE is the surprising financial story here.
GE had a long-term plan for NBC, as it did for all of its businesses, but its board of directors never bought into it. NBC Universal grew enormous quickly but was not that attractive to or completely understood by the board, regardless of the lasting value we created.
The rules and expectations, the hierarchy and business sensibilities at NBC and GE were just too different to ever be reconciled. There was an irreparable break between value as NBC defined it and as GE demanded it. The risks we took yielded the kind of financial rewards GE wanted. But by then, GE was shell-shocked by its own string of failed investments and huge losses, and NBCU became a casualty. Its sale proceeds were needed to meet rigorous new banking capital requirements. It took GE until 2015 to figure out it was not suited to financial services with a plan to dismantle GE Capital and return to being 90 percent industrial dependent.
By October 2015, GE finally rose above the long-standing $25 a share price where it stagnated for so long. It is a different company, shedding businesses and returning to an industrial focus. Immelt is restructuring and dismantling GE Capital, where so much of the value creation and destruction occurred. The sale of about $120 billion in financial assets will unwind a big part of the Welch legacy. The stock did not get much of a bump on the initial news because the market was not happy with some of GE’s prior investments and skeptical how it might invest the proceeds from the divestitures. There’s the lingering memory of some of the largest losses and gains in stock market history.
It took activist investor Nelson Peltz and his Trian Partners’ unexpected $2.5 billion stake in GE in October 2015 to immediately validate GE’s plans and boost the company’s stock price 10 percent. There is a growing sense GE will emerge from all of this a super-strong multinational industrial steered by digital technology that is more attractive to investors. Every dollar per share increase translates into $10 billion in additional market cap which is good for employees, shareholders and investors. Peltz’s 1 percent position coupled with Immelt’s efforts promise near-term upside and renewed recognition of GE as a fabulous industrial company with very strong management and wonderful employees worldwide.