After General Electric’s (GE) historic miss, a swelling chorus is screaming for spinoffs. The gargantuan conglomerate is too big and diversified to function efficiently, the argument goes, and either GE Money or NBC Universal (or both) need to be spun-off. Scott Lawson, from Westwood Capital Management, is one of many analysts urging restructuring:
There’s a point in time when you say this is a big old monster, and parts could be better off on their own. A breakup is looking more viable.
Then there is the credibiility problem. GE used to be famous for delivering almost exactly what analyst expect. Not anymore. The New York Times:
For Mr. Immelt, the problem now is not just the earnings disappointment — the consensus estimate for the first quarter was 51 cents and G.E. reported 44 cents — but a looming credibility gap. On March 13, he assured investors the company was on track to meet its profit targets. And in December, he told analysts that G.E.’s goal of earnings growth of at least 10 per cent in 2008 was “in the bag.”
To make matters worse, under Mr. Immelt and his predecessor, John F. Welch, G.E. was the kind of business that did not surprise investors and delivered what it had promised, no matter how severe the economic headwinds.
“I’ve been covering the company since 1996, and I’ve never seen a miss this big,” said Nicole Parent of Credit Suisse, who had rated G.E. as her top pick but downgraded it to neutral after the earnings report. “You have to ask what is the driving force behind the miss? Is the company too big to manage?”
When the news broke shortly after 6 a.m. last Friday, Mr. Tusa said: “I was on the train, and I almost fell out of my seat. It was a shock — people thought it was a misprint.”
Even if GE can manage to restore its reputation, it still needs to figure out how to put its financial house back in order. Almost all of the most commonly cited solutions to GE’s woes invole restructuring or spin-offs in one form or another.
Analysts have talked for years about spinning off divisions like NBC Universal, questioning the entertainment giant’s synergies with G.E.’s more traditional industrial and financial businesses. But institutional investors are now joining in the call for big structural changes.
Robert Spremulli, an analyst at TIAA-CREF, which owns G.E. shares, praised Mr. Immelt’s move into green businesses, but he wants G.E. to be “more aggressive about getting rid of appliances and lighting, and getting out of GE Money.” Big retailers like Wal-Mart have driven prices down so low that the margins on consumer goods are no longer attractive, he said.
Mr. Spremulli thinks G.E. should still have branded appliances in the market, but would be better off simply letting another company manufacture under the G.E. name. “G.E. should just get out of the consumer business,” he said.
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