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December 30, 2022 - January 17, 2023
It was driving Jeff nuts that GE Capital had to hire five thousand new full-time employees to work with the regulators, at an annual cost of “nearly $1 billion.”
He said that dealing with GE Capital being a SIFI was taking 80 percent of his time.
It was really like running two different companies, and it started to be just untenable.
He started to think seriously about the once unthinkable: getting rid of GE Capital.
“Whenever we’d looked at dismantling GE Capital in the past,” Jeff recalled, “the tax implications alone—$20 billion or more—had appeared prohibitive.
We couldn’t borrow at the rates we were. We couldn’t do the short-term commercial-paper leverage.
Clever financial buyers were in a position to pick GE’s pocket, knowing that it was a forced seller.
How would GE replace the earnings that GE Capital had long provided to GE?
key part of the alchemy was using the cash proceeds of the asset sales plus the repatriated cash to buy back as many as two billion GE shares—reducing
And that’s how Jeff more or less committed to Wall Street that GE would earn $2 a share in 2018.
That promise of $2 a share would be a fateful one for Jeff.
Summing up Jeff’s latest moves, The Economist offered grudging praise, noting that it had taken him thirteen years “to escape” Jack’s “legacy” and to “steer the industrial colossus in a new direction.”
les jeux sont faits.
It was yet another example of Jeff not being able to get along collegially with his direct reports, despite his ongoing belief that he was nurturing them and encouraging them.
Jeff recalled that at that moment the four possible candidates to succeed him as CEO were Bolze, Flannery, Bornstein, and Lorenzo Simonelli, the head of GE’s oil and gas business.
most GE board members I asked to be interviewed for this book
steadfastly ignored my requests, a sign of true cowardice.)
Either way, stay or go, Bolze had learned in real time Ralph Waldo Emerson’s adage about coups: “When you strike at a king, you must kill him.”
About a month before GE closed the Alstom deal, Jeff made another fateful decision that would have serious implications for both GE’s future and his tenure as CEO. He got into business with Trian Partners, a hedge fund founded by Nelson Peltz and Peter May that was well known for being
take stakes in public companies, help turn around the operations and management, if needed, and create value for themselves and other shareholders.
Over time, Trian gained a reputation as savvy, supportive investors as long as the operations, financials, and stock price were improving. If not, they were not shy about insisting on changes to management and
to strategy, and if they didn’t get their way discreetly, they were happy to make their fights public in order to get board seats and then to make their argument for change.
They discussed how to reduce complexity in big organizations, how to structure compensation packages to get the desired results, and how to ensure accountability.
Blair Effron, one of Jeff’s most trusted banking advisers, suggested inviting Peltz into GE. Jeff agreed that Effron could be right. He also believed that the best activist investors could be helpful and insightful.
In the end, Trian bought a $2.5 billion stake in GE, its largest single investment ever.
‘Understand that we’re going to hold you to the commitments you’re making to us, and if you don’t deliver, despite the relationship’—I remember using the words—‘we’ll hold
you accountable.’ It was an awkward conversation.”
After accumulating its $2.5 billion position in GE through the course of the summer and early fall of 2015, on October 5 Trian announced that it had made its largest investment ever...
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Trian predicted the GE stock would be trading at as much as $45 by the end of 2017 if the company delivered on its promises and said it backed the “transformation” of GE that Jeff already had started. Peltz said GE and Trian shared “much common ground” and that Trian would not be asking for a board seat.
Trian released an eighty-one-page “white paper” about GE, which delineated, investment banker style, the problems GE had experienced during Jeff’s fourteen-year tenure and why it believed his “new GE” plan would deliver the near doubling of the stock price that Trian predicted.
page “white paper” ...
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Trian’s thesis was that while GE had “world-class” industrial businesses, it was being dragged down by GE bureaucracy and by GE Capital. But Jeff’s decision to “pivot” changed the calculus for Trian:
Trian’s analysis concluded that GE “can earn at least” $2.20 a share by 2018, some 10 percent more than Jeff had promised. Trian also seemed focused—understandably—on how much money GE would be returning to its shareholders in the form of stock buybacks and dividends.
Trian wanted no less than a stunning $110 billion returned to shareholders.
Trian shared its formula for how GE would get to $2.20 a share by 2018: a combination of earnings from Alstom—Trian declared its public support for the deal (“We believe the Alstom transaction creates value”)—the aforementioned stock buybacks and dividends, and long-overdue operating-margin improvements (themselves a combination of cost reductions and improvements in gross margins). Et voilà. Trian’s alchemy looked highly credible on the pages of a PowerPoint presentation. But could Jeff and his team deliver on the promise of the “new GE,” an unprecedented transformation of the company?
After fourteen years of trying to turn around the GE battleship, by the end of 2015, Jeff seemed to finally have it going in the right direction,
The Alstom deal had closed, and if Jeff and the Power team were to be believed, the profits and “synergies” would soon be rolling
GE’s $3.3 billion deal to sell its appliance business to Electrolux, cut in September 2014, was nixed by regulators in December 2015.
The next year, 2016, would likely be the crucial year to discover whether Jeff would
go down in history as the god who remade GE for the future or the goat who lost control of one of the greatest American companies ever conceived.
The headquarters would place a greater emphasis on “innovation,” the company said.
Then, on June 28, 2016, the Financial Stability Oversight Council voted to rescind GE’s designation as a SIFI,
As important, GE Capital had nearly abandoned its short-term-funding model, reducing short-term borrowings to $14 billion at the end of 2015, from $98 billion at the end of 2012. Commercial-paper borrowing had been reduced to $5 billion.
What was left of GE Capital were three businesses directly tied to GE’s industrial businesses: an aviation finance business, an energy finance business, and an industrial finance business.
GE was finally free of the Fed’s oversight.
The problem for Jeff was that even a GE purged of GE Capital remained complicated to run.
Jeff was quickly coming to the realization that the numbers for Power, post-Alstom, that he (and Bolze) had promised investors were unlikely to be met. And that put into serious jeopardy Jeff’s repeated promise of achieving $2 a share in earnings for 2018.
“There was just this unrelenting push for growth, and when the strategy wasn’t working about replacing GE Capital earnings, there was just enormous, enormous pressure on everyone to keep showing growth,”
said the Power executives miscalculated the market demand for the H turbine.
Siemens’s public statements about what they thought about the market were dramatically different than what GE was saying. GE was saying year-over-year growth and ‘This is what we’re going to do,’ and Siemens was kind of being very negative about what the market was going to look like, and it seems like Siemens was right and we were dead wrong.” He said it wasn’t a question of integrity but rather “I saw a lot of bravado. I saw a lot of arrogance. I saw some misplaced arrogance.”
