NEW YORK • General Electric's (GE's) new chief executive John Flannery on Monday outlined steps that will turn the biggest United States industrial conglomerate into a smaller, more focused company, surprising some investors who sold the firm's shares to a five-year low.
His plan to shrink GE's multi-industry array of businesses was a reversal of the deal-driven empire building of his predecessors, Mr Jeff Immelt and Mr Jack Welch, and potentially a milestone in the decline of the conglomerate as a business strategy.
Other companies that once emulated the GE model of spreading bets among diverse industries are now unwinding their portfolios as well, something Mr Immelt did throughout his 16 years as CEO even as he made acquisitions.
Mr Flannery said he will pare GE down to three core businesses: power, aviation and healthcare. He will keep Mr Immelt's strategy of building software to complement GE's machinery, albeit with a narrower focus and reduced budget.
For investors, Mr Flannery's decision to cut the dividend and 2018 earnings forecast by half added up to a whole that was less than they judged GE to be worth last week.
GE shares fell to their lowest level in more than five years as investors worried the years-long overhaul would not pare down enough expenses or generate as much cash as they hoped. They closed off the day's lows, down 7.2 per cent to US$19.02.
GE stock has effectively been dead money since September 2001, when Mr Immelt took over, posting a negative total return even after reinvesting its juicy dividends. Once the most valuable US publicly traded company, it now has a market value of US$168 billion (S$229 billion), less than a fifth of Apple.
Mr Flannery, who took over as CEO on Aug 1, said he was "looking for the soul of the company again" and would focus on "restoring the oxygen of cash and earnings to the company". He will cut its board to 12 from 18 members and bring on three new directors early next year.
GE said it already has shed 25 per cent of its corporate staff, or 1,500 jobs around the world. It is aiming to reduce overhead cost by US$2 billion next year. The transition includes GE getting rid of at least US$20 billion of assets through sales, spin-offs or other means.
GE will jettison businesses with "a very dispassionate eye," Mr Flannery said, keeping only units that offer growth, a leading market position and a large installed base.
GE said it would exit its lighting, transportation, industrial solutions and electrical grid businesses, closing factories around the globe.
Its digital unit, on which Mr Immelt bet billions of dollars, would focus on selling apps to customers in its core businesses, Mr Flannery said. He confirmed that the shift meant sales staff were being let go.
The dividend cut, to 48 US cents from 96 US cents next year, is only the third in the company's 125-year history and the first not during a broader financial crisis. It is expected to save about US$4 billion in cash annually.