John Flannery, the man charged with taking over General Electric Co. (GE) in the wake of CEO Jeff Immelt's surprise resignation Monday, has plans to conduct a comprehensive review of the iconic American industrial conglomerate's portfolio by this Fall.

The review is likely to conclude that some M&A, including spinoffs and sales, will be necessary, though exactly how much remains to be seen. 

A key catalyst? Activist investor Nelson Peltz and his Trian Fund Management continue to own a large stake. Expect that the fund is continuing to agitate behind-the-scenes, following up on a campaign it launched in 2015 with an 80-page white paper complete with a variety of suggestions, including a request for more stock buybacks and calls for joint ventures and IPOs. And even with Immelt out, expect GE and Flannery will be in Peltz's crosshairs.

"When Nelson Peltz shows up in your list of investors, you can expect that businesses get spun off," said Brian Langenberg, industrial strategist at Langenberg & Co.

The activist fund was a key contributor to Pentair PLC (PNR) recent decision to split up its water and electrical business as well as a similar break up at Ingersoll-Rand Inc. (IR) . Expect Trian to be watching carefully, with some M&A type suggestions in mind. The fund's CIO, Ed Garden, said: "you hit a nerve" when the subject of GE came up at a June 5 conference hosted by The Street and The Deal, but he didn't comment further.

A major driver for potential M&A is GE's lackluster performance of late. The industrial conglomerate has been among the worst performers in the Dow Industrial Average in recent years. Also, cash flow issues and concerns that a $2 earnings per share target for 2018 won't be achieved have been weighing down the stock. Also, some analysts contend that GE will have to cut its dividend in the next couple years.

A potential spinoff target is GE's healthcare business, which doesn't have many synergies with the rest of the company but does generate significant cash for the overall business. Flannery, who will step into the role of GE CEO on Aug. 1, understands GE Healthcare -- he recently served as CEO of that division.

"The healthcare and transportation segments could be areas which GE could decide to spin-off," said Jairam Nathan, an analyst at Daiwa Securities Co. Ltd. 

Langenberg agrees: "It's possible that they could spin off the healthcare business. When John Flannery says 'we're going to review everything' I would take that at face value, which means they could consider selling it."

Outgoing GE CEO Jeff Immelt.
Outgoing GE CEO Jeff Immelt.

Also, further M&A is likely when it comes to a proposed merger between Baker Hughes Inc.'s ( (BHI) ) and the GE's oil and gas business. After the merger, GE will own 62.5% of the shares, which will continue to trade publicly. Baker Hughes holders will retain a 37.5% share of the combination.

Langenberg argued that he expected the oil and gas business to end up completely inside GE or spun off. "This kind of structure is not going to hold up over time," Langenberg said. "These kind of joint ventures are like a long-term date. You either come together or grow apart."

And Daiwa Securities' Nathan also suggests that the GE-Baker Hughes combination sets the stage for a spinoff when oil markets improve. "GE has already put in place a structure through the proposed acquisition of Baker Hughes to spin off the Oil & Gas business," Nathan said.

Also, Peltz in 2015 urged GE to consider joint ventures and IPOs to "continue to reduce the size of GE Capital's balance sheet over time." The activists are likely enthusiastic supporters of GE spinoff Synchrony Financial, (SYF)   However, it's possible Trian wants more.

Langenberg pointed out that there still was about $167 billion in assets in GE Capital, including $41 billion in GE Capital Aviation and $12 billion in Energy Financial Services. He argued that those units have strategic value for GE's industrial core, while the result could be sold off piecemeal or take public in an IPO. "It's not too small to IPO," he said.

Some analysts believe that it may make sense to sell GE's locomotive business. However, Langenberg said he didn't think that it made sense to sell it, arguing that the division was a really strong business that generates a lot of cash flow. Also, he suggested that sale of it wouldn't "move the needle" on the company's performance.

A Trian spokeswoman did not return a request for comment. 

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