THE CONNECTICUT HEADQUARTERS of General Electric was just off a woodsy freeway; the somewhat sparse entrance, manicured lawn grass and little else, was out of sight from the compound in the distance. It looked similar to a government installation except for a surprisingly small sign in the grass: the GE meatball.
Driving down a curving road, a visitor would come to an all-white, gated guard house.
One Sunday morning in October 2015, Immelt was at work on the top floor of the headquarters with Bornstein and a small group of guests, preparing to unleash GE’s next move on the world the following morning. The headquarters was cold and large, both inside and out, and the hallways were a cavernous maze. One executive joked that if he dropped dead in one of the hallways, it might be days before his body was discovered. On some days when few people were around, Immelt could be heard blasting music from his office—the Allman Brothers or other guitar rock of the 1970s—as he worked. Some executives say that these were the times they connected best with Immelt, when he was informal and lowered his guard.
There was no music blasting that day. Some of the guests were from a new major investor in GE, Trian Fund Management, an activist firm usually feared rather than embraced by top executives. The other guests were Wall Street Journal reporters, who were there to learn about the arrangement, interview the CEOs, and drop the news the next morning.
The dance had begun months earlier, after GE’s announcement that it would be selling most of the GE Capital divisions. For many investors, this was an enormous step in the right direction. Nelson Peltz, who ran Trian, called to congratulate Immelt on the move right after the news became public.
In response, the GE boss told Peltz: “We’d love to have you in the stock.”
Some outsiders saw Immelt’s invitation to a disruptive investor like Peltz as a sign of confidence, but it was also a defensive strategy. Other activists were circling GE, casting a shadow over the transformation agenda.
Immelt knew that one of the big risks was an outsider coming in to try to disrupt the plan. Even though GE was a huge company and it would be difficult for anyone to amass a sizable position without significant capital, even large companies had increasingly become the target of activist shareholders, and conglomerates were the dream target. Activist firms loved to take companies apart to find more value in the pieces than the combined operation, and they often went after entrenched CEOs who might not want to loosen their grip on power, using their ownership stake to unseat boards and force strategy changes. But one thing was fairly certain about activists: they didn’t often invest next to each other. If one took a position, others were unlikely to follow.
Regardless of its insistence that it was merely a “highly engaged shareholder,” Trian was undoubtedly a major activist in the market. But to Immelt, it was at least a familiar one. Peltz had come to speak to GE executives in the past, and Trian cofounder Ed Garden had known Immelt since he was a teenager; his older brother was in the same Dartmouth fraternity with Jeff, and he’d listened to Immelt speak at the school’s graduation. For Immelt, these connections made Trian’s involvement seem less threatening, though he knew the risks and knew that Trian wasn’t going to shift its own strategy for GE. But Immelt had convinced them to endorse his plans for GE, assuring them that Trian would benefit from the changes at the company that would inevitably lift the stock price.
Trian wasn’t calling for a breakup, as it had at other lumbering companies, including DuPont and Kraft. Trian wasn’t even seeking a seat on GE’s board, whose eighteen high-powered members were loyal to Immelt, as it had done at Family Dollar, Ingersoll-Rand, Mondelez International, and PepsiCo. Rather, the influential hedge fund was coming forward with what amounted to a high-profile endorsement of Immelt’s strategy, via a massive $2.5 billion investment in GE.
Garden was chief investment officer and also CEO Peltz’s son-in-law, a fact that he didn’t love having pointed out in the press, because he felt it undermined his importance to the firm. Garden had cofounded the fund and was the likely future head of operations. By some claims, Garden did much of the heavy lifting at the firm. If he were to run it for decades to come, having investors think that Peltz was the key to its success might cause some serious problems down the road.
But Peltz and Garden were in sync when it came to running companies. They pushed for efficiency and smart capital allocation, and they looked to cut costs. The coffee mugs in their wood-paneled New York office bore the motto CASH IS KING. When it came to GE, the two Trian leaders made it clear that their investment would be a partnership with management.
They had come to Fairfield that Sunday to explain their thinking. As the meeting began, Immelt was wedged in a chair next to Bornstein, whose body language belied the kumbaya atmosphere that the communication staff was working hard to manufacture. Bornstein often wore a scowl, but it was the rest of his posture that gave him away this day. His arms folded across his chest, the CFO never quite turned in his chair enough to look directly at the self-assured activists who were about to reveal that they’d bought a giant stake in his company.
While Garden and Peltz wore sharp tailored suits befitting men who controlled billions of dollars in investments, they also wore sneakers. That note of informality amplified their power as they sat in the inner sanctum of GE’s board, the place where Immelt held almost absolute power. Amid the fine art displayed in the room, the sneakers were a reminder of their sovereignty.
“It’s not something you want to break up,” Peltz said of GE, sitting in the wood-paneled boardroom. “It’s something you want to keep taking care of.”
Trian had done its homework before amassing its position over the previous month. It laid out its findings in an eighty-page white paper titled “Transformation Underway . . . But Nobody Cares.” The firm argued that GE’s stock, then trading around $25, could reach $40 to $45 a share by the end of 2017.
The white paper praised the Alstom deal and, in a proposal that wouldn’t age well, pushed GE to borrow more so that it could repurchase another $20 billion in stock. Trian, as always, had to rely on publicly available information in its analysis, a fact that it would point to later when explaining its conclusions and recommendations.
Peltz was the high-profile name. A friend of Donald Trump’s, Peltz had dropped out of Wharton as an undergraduate and turned his family’s frozen food and produce business into a runaway success and public company. His first major success as an activist came with the turnaround of Snapple, the beverage company.
Garden, a lean man who wore clear-rim eyeglasses, was the calmer side of the partnership. He had little problem speaking his mind, however, and consistently hammered the message that Trian helped fix companies; it wasn’t one of the corporate raiders that so many CEOs feared. Trian was a force for positive change, he insisted. That said, they had successfully broken up many companies too, when they felt their flaws couldn’t be fixed.
Trian’s endorsement was the stamp of approval that Immelt thought would help others realize the full legitimacy of GE’s expected turnaround. It was an inoculation against some other more abrasive investor trying to buy a stake and change the strategic direction—or perhaps even oust Immelt from the chairman’s seat before his masterstroke had the time to succeed.
By the end of 2015, with Trian’s blessing, Immelt’s plan was coming together. The Alstom deal was closed, the sell-off of GE Capital was going faster than expected, the marketing push for Digital continued, and the stage was set for GE’s next era of greatness.