GE “The House That Jack Built” Becomes Immelt's “Global Industrial Fortress”

• Date: 01 January 2016
• Published date: 01 January 2016
• DOI: http://doi.org/10.1002/jcaf.22119
• Author: Louis P. Le Guyader

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© 2016 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.22119

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GE

“The House That Jack

Built” Becomes Immelt’s

“GlobalIndustrialFortress”

Louis P. Le Guyader

CEO Jeff Immelt

is completing the

most recent phase

of his transforma-

tion of GE. The most

up-to-date version of

his vision foresees GE

as the leading global

industrial corporation.

This GE is a large but

streamlined global

competitor that has

significantly reduced

its emphasis on finan-

cial services and exited

certain mature business

lines; this sleek and

strong industrial GE

is designed to produce

sustainably high indus-

trial sector returns on

equity (ROEs) that

map into a sustainably

high stock price. GE’s

reweighted ROE is also designed

to reflect a qualitatively new

“GE premium” in its stock price.

This article provides a snapshot

of Immelt’s strategy through

mid-2015 and seeks to explain the

propositions most likely to be at

the core of his thinking.

BACKGROUND

When Immelt

took over the GE

helm from Jack

Welch, the “house

that Jack built” had

become a vast inte-

grated industrial

conglomerate with a

marquee plastics busi-

ness and sustainable

GE brand items, from

light bulbs and appli-

ances to locomotives

and aircraft engines.

Moreover, these busi-

nesses were operating

vibrantly in paral-

lel with its growing

finance businesses.

The finance activity

was known by vari-

ous labels and quietly

occupied a capital markets niche

as one of the largest nonregu-

lated banks in the global capital

markets. Dividends were high,

Industrial GE has built a fortress balance sheet.

Legacy businesses were jettisoned if they were too

mature, and declining. The massive finance busi-

ness’s dominance that threatened to overshadow

the balance sheet has been reduced, and the

associated regulatory burden is being minimized.

New industrial businesses have been acquired to

deepen the industrial commitment and diversify

within it, with major positions in Europe and China.

New manageable uncertainties including foreign

currency risk have been accepted as part of the

“going global” bargain. An internal hedge against a

pure “brick-and-mortar” strategy has been created

in the form of a newly announced “digital” market-

ing approach. The purer GE return on equity (ROE)

signal should be easier for the market to interpret.

The “upgraded” ROE is engineered to generate

a new style of “GE premium” in the stock price.

© 2016 Wiley Periodicals, Inc.

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