General Electric CEO Jeff Immelt retiring, with at least US$112m

General Electric named veteran insider John Flannery as its next chief executive, taking over from Jeff Immelt who is stepping aside after 16 years at the helm.
General Electric Co. Chief Executive Jeff Immelt delivers a speech during the opening of a new tower of the Global Operations Center in San Pedro Garza Garcia, neighbouring Monterrey, Mexico May 12, 2017.
General Electric Co. Chief Executive Jeff Immelt delivers a speech during the opening of a new tower of the Global Operations Center in San Pedro Garza Garcia, neighbouring Monterrey, Mexico May 12, 2017. PHOTO: REUTERS

NEW YORK (BLOOMBERG) - Jeffrey Immelt is stepping down as chairman and chief executive of General Electric, bringing to an end a tumultuous 16-year tenure in which he dramatically reshaped the manufacturing powerhouse but failed to win over Wall Street.

Amid mounting pressure from activist investor Trian Fund Management, GE said Monday (June 12) that Immelt will be replaced by John Flannery, a 30-year company veteran who oversaw a jump in profits at the health-care unit. In a sign of just how great opposition to Immelt had become in the investing community, the stock soared the most in more than a year and a half after the announcement was made.

Immelt will retire with at least US$112 million (S$155 million), mostly from supplemental pension plans at the industrial giant. He had amassed US$81.7 million in overall pension benefits as of Dec 31, according to the company's proxy filing dated March 8.

He also will receive at least US$20.7 million from early vesting of restricted stock and pro-rated portions of his target performance shares, based on GE's closing price Friday, as well as US$9.86 million from deferred compensation plans. Two company-paid life insurance plans for Immelt also provide a combined death benefit of US$24.2 million.

There had been great expectations when Immelt, 61, replaced the legendary Jack Welch as CEO back in 2001. The new boss was seen as a big thinker who could guide GE into the digital age and do so with a lighter touch than his cutthroat predecessor. Immelt hasn't shied away from major acquisitions to sharpen the focus on making jet engines, medical scanners and gas turbines, including the US$10 billion purchase of Alstom SA's energy business. He also withdrew GE almost entirely from financial services, which once accounted for about half of sales.

Yet investors were unimpressed. As the stock languished - shares are lagging the market this year after underperforming in 2016 - Nelson Peltz's Trian began stepping up pressure on Immelt. In March, GE agreed to deepen cost cuts after discussions with the activist investor.

"GE may not necessarily need a drastically new message, but it needs a new messenger," said Barclays analyst Scott Davis. It will take several years to determine the payoff of some of Immelt's initiatives, including a digital division, he said.

"The market didn't want to give Immelt any credit for those investments because so many of the things in the past haven't worked out." Flannery has an "excellent" reputation inside GE despite not being known well by shareholders, Davis said. The new CEO may be more willing to pursue a much-needed breakup of the company, Davis said.

The incoming CEO, 55, will become chairman following Immelt's retirement on Dec 31.

GE jumped 4.2 per cent to US$29.11 at 9:48m in New York after climbing as much as 5.5 per cent for the biggest intraday gain since October 2015. The shares dropped 12 per cent this year through Friday, compared with an 8.6 percent gain for the Standard & Poor's 500 Index.

Flannery, who was named the head of GE Healthcare in 2014 after handling M&A for GE, has boosted sales and profit margins in the division. The appointment is the result of succession planning that's been under way since 2011, the company said. Flannery joined GE in 1987.

The CEO-designate "has led complex financial and industrial businesses all over the world, including GE Healthcare, GE in India and the business development team for GE through the successful acquisition of Alstom," Jack Brennan, the company's lead independent director, said in the statement.

Immelt has become one of the world's best-known CEOs yet never won the accolades that Wall Street bestowed upon his predecessor. The shares have fallen about 30 percent since Immelt took over as he faced criticism for cutting the dividend in 2009 and paying too much for some acquisitions. He also built up the oil and gas division just before crude prices plummeted.

Immelt won widespread praise in 2015 for a plan to sell the bulk of the volatile GE Capital business and closing the Alstom deal amid heavy political pressure in France. Trian took a US$2.5 billion stake that year while saying it supported the portfolio shift.

The relationship with Trian began to sour in recent months as investors questioned GE's performance. GE on Monday reaffirmed its 2017 outlook while omitting mention next year's profit target of US$2 a share. Trian didn't immediately respond to a request for comment.