GE: To Divest Baker Hughes?


GE‘s new CEO’s plans stick to health care, power and aviation, stop short of breakup.

General Electric Co.’s new leader plans to unveil a road map Monday for the conglomerate that will focus on three of its biggest business lines, but stops short of a breakup or more radical restructuring of the 125-year-old giant.

Chief Executive John Flannery, who has been conducting a strategic review since he took over on Aug. 1, is expected to focus on GE’s aviation, power and health-care divisions, one person familiar with the matter said. The CEO will look to exit most of the rest of its operations.

GE would be pulling back from its transportation unit, one of the oldest and biggest makers of diesel locomotives, as well as GE Lighting, which traces its roots to Thomas Edison and makes LED bulbs and energy management sensors.

While the three divisions will be the core of GE, Mr. Flannery is expected to stress at a meeting Monday with investors and analysts that he will regularly evaluate the company’s portfolio of businesses as part of how he leads the conglomerate, the person said.

The Boston-based company also plans to eventually shed its majority stake in Baker Hughes, which became a separate public company in July after merging with GE’s oil and gas operations, this person said.

GE owns 63% of Baker Hughes, which had a market value of $40 billion based on Friday’s close. While it intends to exercise its option to exit Baker Hughes, the process hasn’t started and would be subject to some discussion between the companies’ boards. Under the current arrangement, GE is restricted from selling its stake for several years.

Mr. Flannery is expected to streamline GE’s corporate functions, this person said. The company has about 24,000 people outside of its major divisions, in research, digital and headquarters functions. More research work will be moved into specific business units and software development will be limited to the company’s core industries.

It’s unclear how many jobs would be affected by the restructuring moves and Mr. Flannery isn’t expected to announce a specific target on Monday. GE employed about 295,000 people at the end of 2016.

The meeting will give a broad road map and outline a continuing process, but won’t detail every component of Mr. Flannery’s pledge to sell more than $20 billion worth of assets. People close to the process say GE Transportation, which makes locomotives, is part of that plan. The exit from Baker Hughes isn’t considered part of the $20 billion plan, said the person familiar with the matter.

Mr. Flannery and the GE board have been reviewing the company’s dividend, though it’s unclear what has been decided. GE has struggled to generate enough cash flow from its industrial operations to cover the $8 billion payout in recent years, especially as it has pared down its GE Capital unit. It cut the dividend by half in 2009 during the financial crisis.

GE shares are down 35% this year, hitting levels not seen since 2012, compared with a gain of 15% from the S&P 500. The company has lost $50 billion in market value since mid-July, when investors were told to wait almost four months for Mr. Flannery to complete an internal review and reset long-term financial projections. The stock closed Friday at $20.49.

Some investors and analysts have called on GE to reduce the dividend, saying the company cannot afford to continue the payout. Others are pushing for more radical changes to its operations, including breaking up the company or selling off bigger units, such as GE Healthcare, which makes MRI machines and other hospital equipment.

Aviation, power and health care accounted for about 58% of the company’s revenue at the end of 2016 and 156,000 employees. The company has already made some changes to the divisions this year, such as merging the energy connections division into GE Power for a projected $1 billion in annual cost savings.

GE Aviation is one of the top manufacturers of jet engines and enjoyed healthy orders in recent years as it rolled out a new generation of products. GE Healthcare was run by Mr. Flannery until the summer; he led a turnaround of the unit driven by cost reductions and expanding its services to drug makers.

GE Power, however, which supplies turbines for gas and coal-fired power plants, has struggled with its former management misjudging market demand and carrying excess inventory, the company has said. The business will be a major focus at the Monday meeting as division head Russell Stokes is one of four presenting executives.

Former CEO Jeff Immelt revamped GE over his 16 years, getting out of media, plastics, appliances and most of financial services, but also made some ill-timed deals on the oil patch and power markets. He expanded the power business in 2015 by acquiring assets from rival Alstom SA in 2015 and spent billions on energy acquisitions culminating in the merger of GE’s oil-and-gas business with Baker Hughes last year.

Mr. Flannery hasn’t been waiting for the investor meeting to make high-profile moves. He has delayed parts of a new Boston headquarters project, grounded the corporate jets, moved to shut down research centers, and started thousands of layoffs.

After lowering profit targets in October, the new CEO pledged to cut an additional $1 billion in annual spending. Under pressure from activist Trian Fund Management, Mr. Immelt had planned to cut $2 billion in costs by the end of 2018.

Mr. Flannery, who has spent his entire 30-year career at GE, has made management changes to many divisions and replaced chief financial officer Jeff Bornstein with Jamie Miller, who will be in the spotlight Monday. Mr. Flannery is also looking at the makeup of the company’s board, suggesting he will shrink it, and recently gave Trian a seat.

Write to Thomas Gryta at [email protected]

(END) Dow Jones Newswires