#AceBreakingNews says this is courtesy of Rob Cox – Author Reuters Breaking Views columnist. The opinions expressed are his own.
Can General Electric keep activist investors at bay? If the gates at Apple, Microsoft and Procter & Gamble can be rattled, complacency just is not an option for any company, even and maybe especially a $270 billion conglomerate. While GE’s broad strategy looks more coherent than ever, the Connecticut giant still has two potential vulnerabilities: its finance arm and its long-time leader Jeffrey Immelt.
Corporate America has learned of late that size offers no immunity from the braying of ornery shareholders. A $320 billion market value did not shield Microsoft from the pressures of Value Act Capital, which nabbed a board seat and accelerated the exit of Chief Executive Steve Ballmer. Even bigger Apple, and boss Tim Cook, have been targeted by both David Einhorn and Carl Icahn to return more cash to shareholders. A long-standing reputation as a consumer-products stalwart did not protect $220 billion P&G from the advances of Bill Ackman.
GE has so far kept clear. Its executives, however, seem to be cognizant of how quickly that could change. The engines-to-dishwashers manufacturer has been proactively restructuring in ways that could wisely head off rabble-rousers. GE is reducing its exposure to finance, and in recent years exited businesses like NBC Universal, deemed ancillary to a strategy focused on global infrastructure.
As a result, the existing configuration of GE’s industrial portfolio looks better positioned to take advantage of a middle-class future. That world, to put it simply, involves more people around the globe seeking better healthcare, travelling on jet planes and gaining access to clean water and abundant energy – from which they can run GE appliances.
So what would an activist investor go after at GE? The most obvious weak spot is GE Capital. During the financial crisis, the division’s balance sheet of some $550 billion overshadowed the world-class industrial businesses. The need to finance a large financial institution without a stable base of deposits stoked fears GE might even need to jettison valuable assets. GE Capital has since pared its balance sheet by almost a third.
There’s also more to come. In November, GE said it would begin the process of spinning off its consumer finance business, which carries some $59 billion of assets. Once the divestiture is completed, GE Capital will have a loan book of about $350 billion. That’s far below its peak. Yet it still puts GE Capital on a par with U.S. Bancorp and renders it among the country’s biggest financial institutions.
Some of this is easy to justify. About a quarter of GE Capital’s assets will be devoted to what it calls “GE Verticals” where it uses its balance sheet to help finance customer purchases of GE products. But it still envisions tying up more than half its assets in lending and leasing initiatives and some $50 billion in commercial real estate. To investors wanting a more focused, industrial GE, this could provide a potential soft spot.
Courtesy of Rob Cox – Author Reuters Breaking Views columnist. The opinions expressed are his own.