General Electric Co. (GE) plans to sell or spin off $20 billion of its businesses within the next two years as John Flannery simplifies the conglomerate after a review begun when he was appointed CEO in June.
While the Boston-based firm didn't specify which businesses would go on the block when it disclosed the new goal on Friday, Oct. 20, Flannery has been under pressure from investors including activist Trian Partners, which has supported breakups at companies including chemical giant DowDuPont (DWDP) and manufacturer Pentair (PNR) . Trian Chief Investment Officer Ed Garden, who was given a seat on GE's board earlier this month, has said he's optimistic about Flannery's reassessment of the company's holdings.
"Everything is on the table, and there have been no sacred cows," Flannery said on an earnings call with investors. "Each GE business is being measured against a set of rigorous strategic and financial objectives."
Among the possible divestitures at GE is Baker Hughes (BHGE) , which was reshaped after a combination with GE's oil and gas business, and is now well-positioned for a spinoff, analyst Jeff Sprague of Vertical Research Partners has said. Other Wall Street analysts have suggested GE may consider selling assets from industrial lighting, which was part of retiring vice chair Beth Comstock's portfolio, to power conversion and even the locomotive division previously headed by new CFO Jamie Miller.
"I'm conscious of the fact that size and scale drive complexity," Flannery told investors. "The company has many strong franchises, but a number of other businesses that drain investment and management resources without the prospect for substantial reward."
The new CEO, who is detailing his strategy for investors in a Nov. 13 meeting in New York, continued to emphasize that he's fully committed to digital manufacturing. That initiative, championed by Immelt, led to the creation of Predix, a software platform that does for factories what Apple Inc.'s (AAPL) iOS and Google's Android did for smartphones.
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The business fared well in the three months through September, with orders climbing 50% amid gains in power and oil and gas. Still, the company's total earnings were far below Wall Street's projections, and GE slashed its 2017 profit goal by 35%.
"We need to make some major changes with urgency and depth of purpose; our results are unacceptable to say the least," Flannery said on the call. "Things will not stay the same at GE."
While the manufacturer has pared its portfolio significantly in the past several years, exiting most of the lucrative and once-sprawling lending business, selling NBC to Comcast and shedding its iconic appliances unit, Goldman Sachs Group Inc. analyst Joe Ritchie argued that major asset sales shouldn't be a focal point in the near future.
Despite GE's statement that "everything is on the table," he said in a note to clients before Friday's earnings, Flannery is new to his role and most of GE's disparate businesses make strategic sense together -- either because of steady earnings in some that offset cyclical drops in others or shared technology.
Updated from 8:21 a.m. ET on Friday, Oct. 20, 2017.
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