General Electric (US)

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General Electric is one of America's oldest and biggest corporate giants but also, surprisingly perhaps, one of the country's most flexible, having dabbled in numerous very different sectors over its long history. It remains a dominant force in industrial engineering and technology. But for several years, it was also among the foremost US mediaowners through its NBC television network and the Universal Pictures movie studio. This division was sold to cable operator Comcast. For decades, GE was one of the world's biggest non-bank financial services providers, but it quit this sector too in 2015 to refocus on industrial engineering. The consumer finance operations in North America were split out as Synchrony Financial, and other assets sold off to more traditional lenders including Wells Fargo. For almost a century, GE was one of America's biggest home appliances manufacturers, but this business too should finally be divested in 2017. Yet despite these and other changes, the power of GE's corporate brand is undiminished. Interbrand ranks it as one of the world's most valuable brands, and it regularly tops the rankings of the world's most respected companies. Almost from its inception, it has consistently provided a benchmark for smart business strategy and management excellence.

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Adbrands Weekly Update 4th Oct 2018: There was a significantly less dignified transition at troubled industrial giant GE. John Flannery was ousted as chairman & CEO after just a little over a year in that role. Flannery has led a wholesale makeover of the ailing business icon, marketing several divisions for sale, including healthcare and transportation. However, serious problems continue to plague its power generation business, which is to be one of the core units in the slimmed-down group. Sales of electricity turbines are far below target, causing revenues and profits to plunge in the latest quarterly results, and the group said it will take an impairment charge of as much as $23bn against that business in the final quarter. In the 14 months under Flannery's leadership, GE's stock has fallen by two-thirds, and is now at its lowest level since the 2008 financial crisis. The board decided that Flannery is not the man to repair GE's woes, and has replaced him with Larry Culp, a current GE board director and former CEO of industrial conglomerate Danaher.

Adbrands Weekly Update 28th Jun 2018: In the latest dismantling of its once-substantial industrial footprint, General Electric announced plans to divest two further divisions, and focus its activities in just three areas of power, aviation and renewable energy. It had already demerged its oil and gas operations into oil-services company Baker Hughes in return for a majority shareholding in that business. Those shares will now be sold. Also on the block is the group's $19.1bn healthcare equipment business. GE will float around 20% of that business as a separate company with a view to spinning off the remaining shares to investors at a later date. The group will also pare back its central administrative and research business. Healthcare and oil & gas accounted for around a third of GE's revenues last year. The group has already divested its transportation division this year, and is currently negotiating the sale of its lighting business. Over the last ten years it also divested the substantial NBC Universal media division, its mammoth financial services arm and its household appliances operations.

Adbrands Weekly Update 21st Jun 2018: After more than a century as one of America's most admired companies, and for the several years in the early 2000s the single biggest by value, General Electric will be ejected from the Dow Jones Industrial Average next week and replaced by Walgreens Boots Alliance. GE still has a higher market cap than Walgreens, but its flagging performance and steep downward curve persuaded the the compilers of the index at S&P Dow Jones Indices that it was no longer sufficiently representative of the state of the US economy and of the stock market. It's a purely symbolic blow to GE but no more damaging than that. Most market-watchers reacted with bemusement, especially to the selection of Walgreens as GE's replacement. Although it increases the DJIA's weighting towards consumer staples, a traditional bricks and mortar retailer is hardly symbolic of the current state of the market compared to, for example, Amazon, or Facebook or Google parent Alphabet.

Adbrands Weekly Update 24th May 2018: General Electric continued the sell-off of what it now considers to be non-core divisions with a sale of its transportation business to Wabtec, a maker of passenger and freight locomotives. The deal is valued at around $11.1bn in stock and cash. GE gains $2.9bn in cash and will retain a 50.1% shareholding in the merged entity. GE's industrial solutions division is already being sold to ABB, and the group is in negotiations with several potential buyers of its lighting technology division.

Adbrands Weekly Update 16th Nov 2017: General Electric's new CEO John Flannery unveiled a wide-ranging restructuring plan designed to rebuild profitability, which has been in steady decline in recent years. The group will refocus around three core divisions of aviation, health care and power. Other units, including transportation, lighting and oil & gas, will be sold or spun off. Those businesses currently account for around a fifth of combined revenues. To fund the restructuring process, GE will halve its dividend payouts to shareholders, yet Flannery warned it may take years for profits to improve. Investors were not impressed. They had been hoping for a more dramatic shake-up and a faster recovery. As a result GE shares took a further tumble, falling to lows last seen in 2011. The stock has fallen by 40% since the start of 2017.


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Background

Free for all users | see full profile for current activities: General Electric's founder is also probably the world's best-known inventor, generally associated with the creation of numerous products including the light bulb, the phonograph, the movie camera, the X-ray machine and the electric generator. In fact, Thomas Alva Edison was not so much an inventor as a brilliant entrepreneur with a fascination for innovation and new technology. Many of the modern conveniences for which he is credited were not actually discovered by Edison, but he was the first person to realize their potential, to acquire or patent the technology. This he then exploited with a ruthless commercial zeal which made him one of America's most feared businessmen, as well as among its most admired.

The Edison Electric Light Company was founded in 1878, and patented the first carbon filament lamp bulb two years later. Within 10 years, the company had become one of the country's foremost technological innovators, and changed its name to Edison General Electric Company to reflect its range of products. However Edison's success inspired many rivals. One of the most impressive was Thomson-Houston, which combined the scientific skills of inventor Elihu Thomson with the managerial ability of its chairman Charles Coffin. In 1892, Thomson-Houston and Edison General Electric merged, with Coffin appointed as its first chairman. (Although he remained a significant shareholder, Edison resigned as a director two years later, and subsequently busied himself with other inventions including the first moving picture camera system, dictaphone and mimeograph copier.)

Backed by New York financier JP Morgan, General Electric expanded rapidly, unveiling a string of new innovations which revolutionized society. The first electric fan (1902), the biggest ever steam turbine (1903), the first electric toaster (1905), the first spoken radio broadcast (1906), the first compressor refrigerator (1909). In 1910 the company launched its first range of cooking ranges under the brand name Hotpoint. Later innovations included electric washing machines, air-conditioning systems and more. In 1919, the company teamed up with Westinghouse to form the Radio Corporation of America (RCA), manufacturing wireless radio sets. Later it pioneered the first "radio photo", which was to form the core of television broadcasting. At the same time, under Charles Coffin, General Electric set down principles of corporate management that continue to this day. Among the most important of these was the belief that it the company's most important asset was not the products it made, but its managerial talent.

Rapidly the company found itself operating across three main sectors. Domestic appliances proved hugely popular as the company introduced ordinary homes to a variety of labour-saving devices. Meanwhile the company's industrial and research division was a pioneer in the development of X-ray technology, engines, turbines and industrial plastics. And the demand for radio broadcasting was soaring as Americans acquired the company's wireless sets. In 1926, RCA established the National Broadcasting Company to produce professional programming for this rapidly growing audience. However in 1930, as a result of an anti-trust ruling from the US government, GE was obliged to sell off its stake in RCA. The group refocused on its industrial and consumer appliance divisions, establishing The General Electric Credit Corporation in 1932 to help consumers finance their purchase of GE appliances. This was to prove the foundation of an important new business in consumer finance.

Over the next forty years, General Electric became a dominant force in US industry, pioneering developments in jet engines, industrial plastics and diamonds, medical imaging, lasers and even space exploration. Yet by the 1980s the company had become overly bureaucratic and too widely spread, and profitability was suffering. Jack Welch was appointed as chief executive in 1981 and he set about focusing the business on high margin sectors, as well as decentralising the labyrinth of separate operating divisions. Poorly performing businesses were sold or closed; others were reinforced with acquisitions. The financial services business was bolstered with the purchase of Employers Reinsurance (in 1984), investment bank Kidder Peabody (in 1990, sold 1994) and mutual fund manager GNA (in 1993); the medical imaging arm was strengthened with CGR Medical Equipment in 1988. But above all the group moved back into media, reacquiring RCA and NBC in 1986.

Welch's greatest skill in the twenty years that he ran General Electric was an astonishing ability to ride the dips and troughs of the economy, without ever diminishing GE's size. While just about every one of GE's competitors faced serious challenges at one point or other during the 1980s and 1990s, Welch led his company through those two decades almost without blemish, transforming the company from an old economy dinosaur with sales of $28bn in 1981 to a surprisingly agile super-conglomerate with sales in 2000 of over $129bn. His mantra consisted of four major strategic goals: globalization, digitization, a focus on services and a quality control program branded as Six Sigma. On the back of these he delivered an unparalleled run of profit growth. In 20 years, General Electric increased annual net earnings every single year (despite a brief plateau in 1990, and occasional reductions in the scale of expectations).

Facing retirement, Welch unveiled what looked set to be the most impressive deal of his long career at GE in October 2000. The group derailed a bid from United Technologies for rival industrialist Honeywell, offering a staggering $48bn in stock and debt to clinch an agreed merger. A combined GE-Honeywell would have been a mammoth industrial group, with sales of almost $160bn. Although approved by US authorities, the deal was ultimately vetoed by European regulators in 2001 because of the size of the two group's combined aircraft manufacturing arms. As a result a disappointed Welch finally stood down from GE in September that year. His last deal for the group was to approve the $5.3bn purchase of finance house Heller Financial.

Welch's successor Jeff Immelt was immediately faced with the biggest challenge GE had encountered since the 1970s. The terrorist attacks on the US in September 2001 had serious implications for the group's Employers Reinsurance Corporation arm, one of several insurers covering the World Trade Center, as well as the aircraft used in the attacks. Both NBC and GE's aircraft engine businesses were also expected to experience reduced earnings. The group was forced to issue its first profit warning since 1994. The following year Jack Welch's shining reputation was more than a little tarnished when his wife divorced him for conducting an affair with the editor of the Harvard Business Review. She also revealed in court that GE had agreed a handsome retirement package for Welch, including benefits ranging from use of a private jet to membership at America's most exclusive golf course. Coming in the wake of corporate scandals at Enron and Worldcom, the details were seized upon by the US press. Welch subsequently agreed to give up all but the office and administrative support offered by GE.

As a result of the continuing drain on its resources contributed by the insurance arm, GE spun off most of that business as Genworth Financial in 2004, and sold the remainder to Swiss Re a year later. See full profile for current activities


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