Time to break up the GE conglomerate?
We have been saying that in general, conglomerates do not make sense any more, and that they have been replaced by focused specialists (new oligopolies) in one or two industries. There has been one notable exception to that rule, General Electric. While others have focused their gaze on one or a few segments, GE still holds on to divisions making personal loans, making light bulbs, making power turbines, and making sitcoms. True, the company has been divesting some operations over the past few years (notably insurance and plastics), it still has an upper management with its eyes on a challenging plethora of distinct businesses.
A New York Times article ('Is G.E. Too Big for Its Own Good?" 7/22/07) makes that point. GE stock has been stagnant for the last five years, investors are restive, and a Citigroup analyst, Jeffery Sprague, is calling for the company to sever at least a few major businesses from its portfolio. As the article puts it:
So if the heat is on, why not break up the company? Or at least sell off noncore units like NBC Universal or the consumer finance unit, GE Money, which would not only raise billions but also make this colossus a heck of a lot easier for one man to manage? After all, Mr. Sprague says, "when you visualize G.E., you're thinking about the meat and potatoes: power, aircraft engines, energy. You might get comfortable with GE Money, but hardly anyone is buying the stock because of GE Money."
The company argues that there are real synergies between its business arms, that NBC's coverage of the upcoming Beijing Olympics has helped open the door for sales of turbines to China, for example.
But GE, even as it has sold off businesses, has made $75 billion of new acqusistions over the last few years. And it just saw a deal to buy Abbott Laboratories medical diagnostic equipment division blow up in it face, saw the stock get pummeled by investors who disliked the $9 billion deal, and ended up canceling the deal.
The problem in one sense is that company is so big that it is exposed to a wide variety of potential problems.
With six main divisions - commercial finance, infrastructure, industrial, consumer finance, health care, and entertainment and media - G.E. has long been a proxy for the overall health of corporate America. And anything that hurts the nation's economy usually takes its toll on G.E. as well. The current crisis in subprime mortgages, for example, is underscored by a $500 million hit to earnings G.E. absorbed in the first half of the year.
Despite GE's undoubted manufacturing prowess and its strong position in a half dozen industries, every big success (such as its profitable and fast growing wind turbine division) is offset somewhere else in the company by lagging operations. That's hwy the consensus is that it would be an easier company to manage and to grow profit for if it only could concentrate on a few real winners.
