GE Aligns around Core Industries:
Infrastructure, Finance, Media

From GE Press Releases

July 25, 2008 02:55 PM

Strong leaders in place to drive execution and connection to markets;
John Krenicki named Vice Chairman of GE

FAIRFIELD, Conn.–25 July 2008– GE Chairman and CEO Jeff Immelt today announced an organizational structure that simplifies the company and aligns businesses for growth and efficiency.

Immelt said, “GE is a global infrastructure, finance and media company that is well positioned to capitalize on some of the major growth themes of this era. With the announcement of our focus on a possible Consumer & Industrial spin-off, we can structure the company in a simpler way that can maximize future growth.”

“Infrastructure leads our growth, with revenues approaching $90B. Our infrastructure businesses are all global, technology based and have dynamic service opportunities. The new organization will put two strong leaders in position to drive execution,” said Immelt.

Effective immediately, GE moves from six to four segments, including two infrastructure segments:

• GE Technology Infrastructure– Led by Vice Chairman John Rice, this segment includes Healthcare, Aviation, Transportation and Enterprise Solutions. These businesses have opportunities to leverage technology, software and engineering.
• GE Energy Infrastructure– Led by newly appointed Vice Chairman John Krenicki, this segment includes Energy, Oil & Gas and Water. These technologies already work together with large customers, particularly in emerging markets.
• GE Capital –Led by Vice Chairman Mike Neal, this segment aggregates all the financial service businesses including Commercial Finance, GE Money, industry verticals (GECAS, Energy Financial Services), and Corporate Treasury. This organization will improve GE Capital’s opportunities to allocate capital, grow globally and reduce cost.
• NBC Universal– Led by Jeff Zucker this segment is unchanged and will continue to focus on its strategic evolution through globalization and diversification.

“We have been upgrading our portfolio of businesses and simplifying our organizations for market focus, efficiency and execution,” Immelt said. “We have higher-growth, higher-margin businesses and organizationally have simplified the company from 11 business segments in 2001 to four segments today. At the same time, we have structured the company to best utilize our strong leadership team while maximizing synergy and execution.”

Immelt also announced that the GE Board of Directors had named Krenicki, 46, a 24-year GE veteran, as a vice chairman of GE.

“John is a world-class infrastructure expert, business strategist and commercial leader who has done a terrific job leading our Plastics, Transportation and Energy businesses,” Immelt said. “His clear thinking and broad global leadership experience will help drive growth across our energy and water infrastructure businesses.”

Since 2005, Krenicki has been president and chief executive officer of GE Energy, a leading supplier of power generation technology, energy services and energy management systems. Previously, he was president and CEO of GE Plastics and GE Advanced Materials. He also held a number of other leadership positions at various GE businesses, including vice president of the Americas for GE Lighting, vice president of GE Superabrasives and president and chief executive officer of GE Transportation Systems.

Krenicki earned a bachelor’s degree in mechanical engineering from the University of Connecticut and a master’s degree in management from Purdue University.

GE’s Sprawling Empire

By Ricky McRoskey

Will they stay or will they go?

That’s the question surrounding several of General Electric’s (GE) business segments as the tough economy forces the beleaguered industrial conglomerate to reshuffle some of its major operations. On July 10, the 130-year-old company announced it will unload its $17 billion Consumer & Industrial arm, which makes everything from lightbulbs to dishwashers. GE’s credit-card business has been on the block for months.

Since taking the helm, CEO Jeffrey Immelt has shed more than $55 billion in businesses only to acquire $88 billion in new assets, particularly in higher-growth, high-tech areas. What could be Immelt’s next move?

BusinessWeek ponders the outlook for GE’s six major businesses.

GE Infrastructure

Sales: $57.9 billion

GE’s Infrastructure division is on solid ground. The company’s biggest segment, which pulled in more than one-third of overall revenues last year, makes everything from wind turbines to oil drilling equipment. With broad exposure to infrastructure-hungry emerging markets, the division saw earnings rise 24% to $3.2 billion in the second quarter and just unveiled an efficient propeller-driven engine for airlines struggling with soaring fuel prices. GE’s core infrastructure bulwark will drive its earnings for a very long time.

GE Commercial Finance

Sales: $34.3 billion

The finance division, which lends to businesses seeking to buy everything from industrial equipment to real estate, was a key reason GE missed Wall Street estimates by ¢ per share in the first quarter. The size of this unit is likely to shrink from its current stake in GE’s portfolio. There’s good news for the unit, though. Last week, after reporting commercial finance profits jumped 7% in the second quarter, GE stressed its financing unit doesn’t need the cash lifelines that many of its banking peers do.

GE Money

Sales: $25 billion

It’s tough to sell loans during a credit crunch. That’s at least what GE’s retail lending segment is learning now, as it looks to unload some of its debt in mortgages and credit cards. In the second quarter, credit delinquencies for GE in North America rose 105 basis points to 5.55%, bad news for a division that is trying to sell its $30 billion credit-card business, which issues cards for retailers including Chevron and Lowe’s. In December 2007, the segment sold WMC, its U.S. mortgage business, for $117 million, and last week sold off its Japanese mortgage loan business at a price that analysts thought was favorable‚ $5.4 billion. With second quarter profit falling 9%, look for GE to reallocate some of its exposure to consumer lending into commercial finance.

GE Healthcare

Sales: $17 billion

Investors were watching this underperforming unit very closely before second-quarter earnings alleviated some of their fears. The division, which manufactures medical equipment like X-ray machines, saw profit jump 8% and revenue increase 11% in the second quarter‚ after a 17% drop in profit the previous quarter. That’s a sign the division, which Immelt ran before becoming CEO in 2001, is on much better footing.

GE Consumer & Industrial

Sales: $17.7 billion

The days are numbered for GE’s trademark industrial unit. Last week the company announced it will spin off the lightbulbs-to-refrigerators-to-dishwashers division, which is struggling mightily as consumers eschew large-scale home purchases. Second-quarter profit for the segment fell 55%, prompting management to unload the business that Thomas Edison launched back in 1878.

NBC Universal

Sales: $15.4 billion

GE and NBC have both maintained that the struggling media giant is not for sale, but that hasn’t stopped investors’ perennial speculation that GE won’t keep it. With a scant 1% profit growth last quarter, NBC fell short of GE’s profit expectations, although some of the lagging stemmed from the writers’ strike. The Summer Olympics should give the network’s ratings a temporary boost, but the smallest of GE’s six segments by revenue will probably continue to invite speculation of an eventual sale.

GE’s Immelt: an Ever-Hotter Throne

By Jena McGregor

July 17, 2008, 5:00PM EST

The pressure to lift the share price is building.
But CEO Jeff Immelt’s options are limited

On July 11, Jeffrey R. Immelt finally got a break. And he hasn’t had many during his time atop General Electric (GE)—especially in recent months. After a historic first-quarter fumble, in which he was loudly derided for an earnings miss of 7Cents below expectations, he met his targets. While profits were down, GE reported strong growth in its infrastructure business and a rebound in its commercial-finance unit. But the market didn’t reward him. The battered stock price rose just 2Cents on the day’s news, to 27.66. Since the beginning of the year it’s down 25%, compared with a 15% drop in the Standard & Poor’s 500-stock index.

Now, Immelt is fighting to revive faith in the sprawling $173 billion conglomerate, even as forces are working against him. The credit crisis and GE’s April 11 earnings miss have put him under tougher scrutiny than at any time in his seven-year tenure as CEO. Investors are questioning the size and complexity of the company, and want him to move faster to shed assets. Immelt is acutely aware of the pressure, even as he continues to build GE for the long term. But he’s trying to position the company to thrive in an extraordinarily tough economy that has greatly narrowed his options.

Tumultuous Climate

Immelt faces a range of daunting challenges. After leading GE through a national catastrophe and two recessions, he’s now operating in a tumultuous market that’s punishing stocks with even a whiff of financial exposure. He is trying to sell consumer finance businesses when potential buyers are skittish. A leader known for his external focus, he must also deal with a raft of pressing internal issues. Not only does GE’s eroded stock make it harder to motivate employees in a much-vaunted performance culture, but the current efforts to get out of certain businesses have left more than 50,000 employees in a state of limbo that makes it hard to deliver results. Joseph M. Hogan, president and CEO of the $14 billion GE Healthcare unit, is leaving the company, which could signal more changes ahead.

While Immelt, 52, insists that “we’re not going to let one quarter define GE,” he is making some big moves. On July 10, GE announced plans to spin off the struggling Consumer & Industrial Div., which includes its iconic lighting and appliance businesses, just two months after Immelt said he would sell only the appliances segment. The company is also trying to auction off its $30 billion credit-card unit. Some analysts and investors are ramping up the chatter about selling off NBC Universal, though Immelt says that isn’t on the table. “We unfortunately have a company here that is way behind schedule for redoing the portfolio,” says Sterne Agee analyst Nicholas P. Heymann. Morgan Stanley (MS) analyst Scott Davis likes the energy: “Their backs are up to the wall, and they seem to be fighting hard.”

While Immelt still has strong support among long-term shareholders, the first-quarter miss prompted tougher scrutiny of his decisions. “Prior to April of this year, I pretty much agreed with everything he was doing,” says Jim Hardesty, president of Baltimore-based Hardesty Capital Management, which holds GE shares. Now he’s less inclined to give Immelt the benefit of the doubt. “If this was year three, I would say, ‘Oh well.’ It’s not year three, it’s year seven. We’ve been waiting a long time.”

Bitten By Subprime

Along with the burden of replacing the most celebrated CEO of his generation, Immelt inherited an inflated stock price—the so-called Welch premium—that fostered unrealistic expectations. Yet he has still managed to produce 14% growth in annual earnings and 13% annual revenue gains, on average, over the last five years. He has overhauled the portfolio, buying $88 billion of assets in high-tech growth areas like alternative energy and bioscience while dumping more than $55 billion of less attractive plays such as GE Plastics, his old stomping ground. The GE chief has made a distinct imprint as a manager, leaving executives in the same position longer than the traditional one or two years so they can develop deeper industry expertise while demanding that each business become more customer-focused, as well as more innovative.

But Immelt hasn’t always helped himself. Investors say he has overpaid for some acquisitions, pointing to GE’s investments in water, security, and some media properties, such as iVillage. “They have this mindset that the GE way is so superior that they’ll make it work,” says Wendell L. Perkins, chief investment officer for Optique Capital Management. “And typically, they have. But in this more challenged global economy, that may be more difficult to do.”

Another costly miscue for Immelt was WMC Mortgage, the subprime mortgage company he bought in 2004. Morgan Stanley’s Davis calls the move “abysmal.” As the subprime market imploded, GE lost $1 billion on WMC, ultimately selling it in late 2007. The company may not have a perfect batting average on acquisitions, admits Keith I. Sherin, GE’s chief financial officer, but “we’ve got a pretty good track record.”

While Immelt’s marketing instincts have given GE a more external focus, they’ve also led him to make promises that were hard to deliver. Just weeks before the first-quarter miss, he held an online town hall for retail investors in which he confirmed GE’s 2008 outlook, saying “in this environment that’s going to look pretty gosh-darn good.” With the carnage in the banking sector well under way, other GE execs weren’t so sure. Although the earnings report largely blamed the miss on the Bear Stearns (BSC) debacle, other units underperformed. Credit Suisse’s (CS) Nicole Parent wrote that “it is shocking to us how weak results were across the portfolio.”

Even with the solid second-quarter results—revenues were up 11% and earnings met estimates—the environment has hardly improved. The sale of GE’s private-label credit-card business is going slower than expected in the wake of worries about consumer spending. Efforts to shed the appliances unit are in flux. With private equity firms snapping up every name brand they could a few years ago, some wonder why Immelt waited so long. “Why do you pick the worst housing market in the last 50 years to try to sell this thing? It should have been done three years ago,” says Hardesty. Sherin says the sale of other large businesses took priority and notes that concern for the GE brand made them take their time. “When it’s in every household…you want to make sure if you make a change like that you really are comfortable doing it.”

Immelt remains optimistic. He points to the strong currencies of potential foreign buyers, as well as his past successes. “It was a tough environment to sell Plastics,” he says. “It was a tough environment to sell reinsurance.” Even so, he wishes he had moved to sell the insurance business sooner, calling it a “financial drain on the company.”

Even with the disposal of insurance, the reality is that GE remains a company that’s far more exposed to financial services than many investors would like. Back in 2001, when GE Capital made up 40% of the company’s net income, Sherin said he wouldn’t want that ratio to go above 45%, at least for a few years. Now those businesses are roughly half the net. Immelt says asset disposals and the boom in infrastructure should bring the ratio back to about 60% industrial and 40% financial by 2010.

But the tougher earnings environment has also prompted fresh debate on whether Immelt should break up the conglomerate. The perennial issue isn’t just trying to get double-digit growth from such a mammoth enterprise. It’s also the fact that GE’s scale makes it harder to maneuver. “The company is so big, it’s tough to put properties this size on the market,” says Mike McGarr, a portfolio manager with Becker Capital Management.

A number of investors also think GE remains far too complex. Anyone who gets excited about the lucrative growth potential of power turbines and aircraft engines—GE announced nearly $4 billion in aviation deals on July 16 at the Farnborough International Air Show—has to put up with retail banking and a broadcast TV network. “Unless there are synergies, you’ve really got to take a look at if there is a higher and better use of that capital,” says Scott Lawson, a portfolio manager at Westwood Holdings.

A persistent source of irritation for some investors is NBC Universal, with one calling it “a corporate spleen”: good for now, but something GE could live without. A high cash-flow business with some of the highest margins in GE’s portfolio, NBC’s cable operations are boosting its performance, but the network is struggling.

Primping the Peacock?

Longtime GE analyst Heymann thinks a move on NBC Universal needs to happen—and soon. He believes that to fully restore investors’ confidence, Immelt needs to shed the consumer finance units in developed markets, and should announce plans to sell NBC Universal sometime after the Olympics, but before the company’s end-of-year shareholder conference. GE’s recent $3.5 billion purchase of the Weather Channel, he says, was telling. The deal was financed with the help of private equity firms Bain Capital and Blackstone Group (BX), an unusual move for GE. With the cable property’s highly trafficked Web site, it could make NBC Universal more attractive to potential buyers. “That’s the Duncan Hines icing on your cake called [digital] media,” Heymann says.

While it could have been meant as a joke–Immelt started his career marketing Duncan Hines brownie mix at Procter & Gamble (PG), along with cubicle mate Steven A. Ballmer, Microsoft’s (MSFT) CEO—he might not consider it funny. Immelt is adamant he doesn’t plan to sell NBC Universal. “Other than the emotional blather and the psychoanalysis people want to put the company through,” he says, “when you talk about the industrial/financial mix, when you talk about margin rates, this is a really good business, and a good fit for the company.”

Immelt says he doesn’t plan to change his strategy—other than raising his cost—cutting targets by $1 billion to $3 billion for this year. He is considering consolidating some financial services units to simplify GE’s structure, but he believes GE remains on the right path. While he may not like the economic climate, he’s confident that the shares will ultimately reward solid execution. In the meantime, he’s doing what he can to help GE thrive. “Everybody would like to see the stock price higher,” he says, “me at the front of the list.”

Links

Some academic research lends credence to shareholder calls for streamlining GE’s business model

The so-called conglomerate discount—the notion that diversified companies should be valued lower than single-industry companies—is the subject of academic debate. One of the most recent salvos comes from Manuel Ammann and Michael Verhofen, professors at Switzerland’s University of St. Gallen. Their 2006 study finds the conglomerate discount closely tracks the number of different businesses a company runs and how closely related they are. Their take: The more disparate the business mix, the bigger the discount.

GE’s Chance to Reassure Investors

By Jena McGregor
July 10, 2008, 12:01AM EST

CEO Immelt is under pressure to improve on the Q1 earnings flop,
as GE says it plans to spin off its entire consumer and industrial unit

General Electric’s (GE) announcement of its second-quarter earnings results on the morning of July 11 is shaping up to be one of the most closely watched events on Wall Street this summer.

Partly that’s because profit results from the conglomerate, which counts everything from gas turbines to TV sitcoms among its product mix, have long been a bellwether for the health of the overall U.S. economy. And we all know how shaky that is nowadays. In addition, GE’s July 10 announcement that it plans to pursue spinning off its entire GE Consumer & Industrial segment will have investors listening closely for CEO Jeffrey Immelt’s discussion of the move. Divesting the consumer & industrial businesses, which includes GE’s iconic lighting business and the previously announced sale of its appliances unit, has long been expected by investors, but the focus on a spin-off should speed up the process. “There’s an urgency to declutter and help people understand the evolution of what GE is going to be,” says Sterne Agee analyst Nicholas Heymann.

But what’s really training Wall Street’s eyes on the Fairfield (Conn.)-based company’s announcement is GE’s unprecedented first-quarter earnings miss. Three months ago, GE shocked the Street by announcing earnings per share that were 7¢ below estimates, prompting its stock price to tumble nearly 13% in one day.

Making matters worse, the historic miss came just weeks after GE CEO Jeffrey Immelt issued a confident outlook. It was a most uncharacteristic jolt for investors who were accustomed to GE’s consistent track record of meeting its numbers.

Investor “Fear Factor”

Since that date, the pressures on Immelt have only mounted. GE’s stock price has fallen another 14% since Apr. 11. Six analysts have downgraded the stock, with a few calling for a breakup of the company that goes far beyond Immelt’s current efforts to restructure the portfolio.

Immelt’s predecessor (and BusinessWeek columnist) Jack Welch even went on CNBC on Apr. 16, saying Immelt had a “credibility issue” and was “getting his ass kicked.” Welch later said his comments were interpreted incorrectly, but that did little to change the fact of Immelt’s bruised credibility on the Street.

The first step to restoring that credibility, of course, will be meeting his second-quarter earnings forecast, which most analysts believe the company will do. GE attributed its first-quarter miss primarily to the extraordinary credit-market turmoil following the Bear Stearns debacle, which prevented it from closing asset sales. Following the miss, GE revised its full-year earnings expectations downward and set second-quarter guidance at 53¢ to 55¢ per share, on $45 billion in revenues.

That’s about flat to slightly higher than the second quarter of last year. Analysts are expecting earnings per share of 54¢, according to Thomson Financial. Sterne Agee analyst Heymann believes it’s very likely GE won’t turn in any negative surprises, and feels assured by GE Capital’s relatively low exposure to “opaque, hard-to-value” securities that could prompt further writedowns.

But investors weary of the stock’s long-term malaise will be watching for more than just whether GE meets its numbers. To remove the “fear factor” that has been weighing down the stock, says Heymann, investors will be looking for more transparency in the financial-services portfolio and more clarity on how much of GE’s earnings per share comes from operations vs. asset sales.

Health-Care Business Is Key

They’ll also be expecting an update on the status of two pending divestitures. GE is in the process of trying to sell its private-label credit-card business and its iconic appliances unit, a sale it announced in May (BusinessWeek.com, 5/16/08). With the housing industry decimated and consumer finances on the rocks, some investors have questioned the timing of these moves.

“Maybe they could have done that sooner,” says Eric Schoenstein, co-portfolio manager of the Jensen Portfolio, though he admits hindsight is always helpful. “But at least by getting rid of [private-label credit cards], you take [some] consumer risk off the table.”

Others will be watching for how well GE’s health-care business fares. In the first quarter, earnings for the unit were down 17%, on flat revenues. Lower reimbursements for medical equipment affected demand and contributed to the weakness. Because Immelt ran this business before becoming CEO, and has positioned it as part of his strategy of meeting long-term demographic trends, investors are especially mindful of its performance.

“If [health care] starts to fail to meet your objectives,” says Jim Hardesty, president of Baltimore-based Hardesty Capital Management, which owns GE shares, “where is everything else going to wind up?”

GE to Sell Japan Finance Units to Shinsei, People Say

By Rachel Layne and Takahiko Hyuga
Friday, July 11, 2008

July 11 (Bloomberg) — General Electric Co. plans to sell its Japan consumer lending operations to Shinsei Bank Ltd. for about $5.5 billion, two people familiar with the matter said.

GE, the second-largest U.S. company by market value, will sell its Tokyo-based Lake unit and two smaller consumer finance businesses to Shinsei in a deal that may be announced as soon as today, the people said. They declined to be identified as the talks are private.

Chief Executive Officer Jeffrey Immelt, under pressure to revive GE shares after announcing a surprise first-quarter profit drop in April, is disposing of as much as $100 billion of financial assets. Japan’s consumer lending industry has been in decline since a 2006 crackdown on interest rates and collection practices by the country’s government and courts.

“Japanese banks are nervous as the consumer finance industry’s outlook is increasingly uncertain, and that creates a good opportunity for acquisitions,” said Shinichi Tamura, a Tokyo-based analyst at Deutsche Bank AG. “The deal is positive for the non-bank lenders as it shows there are still acquirers.”

Shinsei fell 3 percent to close at 358 yen in Tokyo trading while the 84-company Topix Banks Index was unchanged. Reuters reported earlier that Shinsei may buy Lake, citing people it didn’t identify.

A GE spokeswoman in Tokyo, who declined to be identified, said she had no comment. Robert Luton, Shinsei’s head of consumer finance, didn’t respond to a message left on his cell phone.

Shinsei’s Chief Executive Officer Thierry Porte will give a press briefing on “plans for new business development” at 5:15 p.m. in Tokyo, the company said in a statement.

Trailing Acom

Lake, which makes unsecured personal loans to individuals, has about 650 billion yen ($6 billion) in outstanding credits, according to estimates released by Promise Co., Japan’s second- largest consumer lender by market value.

Shinsei would have about 800 billion yen in such loans outstanding after the acquisition, including its Shinki Co. subsidiary. Acom Co. is the industry leader with 1.3 trillion yen at March 31, according to the Promise estimates.

Fairfield, Connecticut-based GE reports results today and has forecast earnings of 53 cents to 55 cents a share in the second quarter, reflecting the reduced 2008 earnings target Immelt announced in April. The average of 15 analysts’ estimates in a Bloomberg survey is 54 cents a share, unchanged from a year earlier. GE shares have dropped 25 percent this year.

Industry Woes

Shinsei, the first Japanese lender controlled by overseas investors, is expanding into an industry that has been shrinking since Japan approved legislation in 2006 capping the interest rates consumer lenders can charge at 20 percent, down from 29 percent previously.

The nation’s four biggest consumer finance companies posted losses totaling 1.7 trillion yen in the year ended March 2007 after making provisions for potential refund claims by borrowers who paid excessive fees and interest.

Three of the four lenders have sold convertible bonds this year to raise capital. Promise fell the most in six years on July 9 after scaling back a convertible bond sale by 30 percent, citing “unstable” markets.

Aiful Corp., Japan’s biggest consumer lender by assets, plunged 11 percent on June 25 after Lehman Brothers Holdings Inc. said in a report the lender’s parent may be insolvent. Aiful denied it has funding difficulties and later said it may sue Lehman.

Shinsei’s existing consumer-finance units Shinki and Aplus Co. returned to profit in the year ended March 31 after both posted losses the previous year.

Shedding Assets

Since the beginning of the year, GE has agreed to sell its corporate charge card unit to American Express Co. for $1.1 billion. It agreed to swap GE Money units in Germany and the U.K. to Spain’s Banco Santander SA in exchange for Italian commercial lender Interbanca SpA, which is valued at 1 billion euros ($1.58 billion). GE last year sold U.S. subprime unit WMC Mortgage and put its Japanese consumer business on the block.

In May, the company said it may divest its Australian home mortgage unit Wizard as loan growth slows after four interest- rate increases since August. The unit may be sold or moved into a joint venture or take on a partner, Mike Cutter, GE Money’s chief executive officer for Australia, said at the time.

In April, GE posted a 12 percent decline in first-quarter profit from continuing operations to $4.36 billion. The company cited financial market turmoil that cut the value of investments and thwarted end-of-quarter dealmaking.

GE has done business in Japan since 1886, when it provided electric generators to a government printing factory. It entered the local consumer finance market by acquiring Minebea Shinpan Co. in 1994. Four years later, the unit bought Lake’s personal loan business.

GE sold its Japanese life insurance unit to American International Group Inc. in 2003.

GE and Mubadala Launch Multi-Billion Dollar
Global Business Partnership

From GE Press Releases

22 July 2008

Will include clean energy and water R&D, aviation, industry and corporate learning initiatives;
$8 billion joint venture to target high-return commercial finance opportunities

Jeff Immelt and Khaldoon Al Mubarak

NEW YORK & ABU DHABI, United Arab Emirates–22 July 2008– GE (NYSE: GE) and Mubadala Development Company, headquartered in Abu Dhabi, UAE, today announced a framework agreement on a global partnership encompassing a broad range of initiatives including commercial finance, clean energy research and development, aviation, industry and corporate learning. Building on an already strong relationship and a common view of high growth opportunities in the Middle East and globally, the agreement provides for shared capital commitments to new joint ventures and investment funds.

In addition, Mubadala also plans over time to become a long-term GE shareholder. The expectation is that Mubadala will become one of GE’s top ten institutional investors through the open market, as conditions allow.

The multi-faceted partnership will include initiatives in the following areas:

• Commercial finance: Over the next 12 months, the two companies will establish a jointly owned global commercial financial services business headquartered in Abu Dhabi with best-in-class origination, funding and risk management capabilities. The two companies will each allocate $4 billion in equity for the venture over a three-year period. The venture will expand GE’s opportunity pipeline globally, particularly in the Middle East and Africa, while providing Mubadala with access to GE’s best-in-class commercial finance capabilities. The new business initially will focus exclusively on investment opportunities generated through GE Capital’s existing origination and servicing capacity, with targeted assets in excess of $40 billion.
• Clean energy and water R&D: GE and Mubadala will establish a clean energy technology center located in Masdar City, the new carbon neutral, zero-waste city in Abu Dhabi. Masdar is Mubadala’s world-leading alternative energy initiative. The center will be an extension of GE’s global research network and will house up to 100 technologists developing new sustainable energy, water and other environmental technologies. GE will now have five research centers around the globe. GE also will establish an ecomagination® center in the Masdar facility to market and showcase its ecomagination products. Ecomagination® is GE’s successful business initiative that develops more energy-efficient and environmentally friendly products and services.
• Investment funds: GE also intends to commit up to $50 million to Masdar’s second Clean-Tech Fund, focused on multi-geography investments in the clean technology sector and companies that simultaneously reduce dependency on traditional energy sources and the environmental burden of energy production. In addition, Mubadala intends to invest up to $200 million to GE Industrial Investment Partners, a new partnership of select global investors that will focus on providing growth capital to companies in the healthcare, energy, and transportation industries.
• Aviation and oil & gas: GE and Abu Dhabi Aircraft Technologies (ADAT), Mubadala’s leading Middle Eastern aviation maintenance, repair and overhaul (MRO) company, will explore expansion of their MRO capabilities to support the large and growing number of GE aircraft engines in service in the region. GE will widen the scope of its joint venture with ADAT, called Gulf Turbine Services, to include field service and repair capability for the oil & gas industry in the UAE.
• Corporate learning: Also housed in the Masdar facility will be a new corporate learning program. GE will manage the curriculum, courses and instructors, which will come from its world-renowned “Crotonville” executive education program. This center will host the region’s business leaders and GE executives for training. It is expected to launch by the first quarter of 2009.

Implementation of the framework agreement is subject to negotiation of definitive documents and receipt of required regulatory approvals.

GE Chairman of the Board and Chief Executive Officer Jeff Immelt said, “This partnership brings together two world-class organizations with complementary resources and a shared commitment to excellence. Mubadala has deep experience, a diversified portfolio of businesses, access to regional infrastructure opportunities and an exciting vision for growth. We are delighted to be partnering with them to capitalize on what we believe are significant opportunities in today’s global financial marketplace.”

“This partnership is consistent with our global growth initiatives and builds on our long-term relationships in a high-growth region like the Middle East,” Immelt said. “We can use our unique financial and industrial capabilities to establish profitable relationships across a number of businesses and we welcome them as a long-term shareholder.”

Mubadala Chief Executive Officer and Managing Director Khaldoon Al Mubarak said: “Mubadala’s approach is to work with the world’s very best partners to develop and operate businesses that generate outstanding financial returns. Our long-term partnership with GE draws on a joint commitment to, and core expertise in, high-growth businesses like clean energy, project finance and aviation. Most importantly, both our companies regard knowledge and the development of executive and scientific talent as a competitive advantage.

“GE constantly sets global benchmarks and is well positioned for continued success,” said Mr. Al Mubarak. “When we partner, we seek to create value for both parties in multiple ways. This partnership does exactly that.”

GE and Mubadala have been working together for more than four years. Mubadala and GE currently jointly manage an infrastructure fund (The Mubadala Infrastructure Partners) that invests in major projects in the region. GE also is an anchor partner in the Masdar initiative, helping create solutions in clean energy. GE has also hosted Mubadala senior executives at its Crotonville leadership center in New York. This in turn led to the Mubadala & GE Management Program that was launched in Abu Dhabi in 2006 – a leadership program run in Abu Dhabi and across the Arabian Gulf.

GE has been growing significantly in the Middle East, including Abu Dhabi. GE’s 2007 revenues in the region were over $5 billion, an increase of 50% over 2006. Abu Dhabi companies and institutions represent a large customer base for GE’s aircraft engines, healthcare and energy products and services. GE has established Abu Dhabi as an important GE service center hub in the region, with facilities dedicated to its Energy and Sensing businesses.

For more information on GE and Mubadala, visit www.ge.com/news/partnership.

About GE

GE is Imagination at Work — a diversified technology, media and financial services company focused on solving some of the world’s toughest problems. With products and services ranging from aircraft engines, power generation, water processing and security technology to medical imaging, business and consumer financing and media content, GE serves customers in more than 100 countries and employs more than 300,000 people worldwide. For more information, visit the company’s Web site at http://www.ge.com/.

About Mubadala

Mubadala Development Company (Mubadala) is a Public Joint Stock Company headquartered in Abu Dhabi, capital of the United Arab Emirates. Its focus is on developing and managing an extensive and economically diverse portfolio of commercial initiatives. It does this either independently or in partnership with leading international organizations. Mubadala’s commercial strategy is fundamentally built on long-term capital-intensive investments that deliver strong financial returns.

The company manages a multi-billion dollar portfolio of local, regional, and international investments, projects and initiatives. Through its investment and development projects, Mubadala is both a catalyst for, and a reflection of, the drive for economic diversification of the Emirate of Abu Dhabi. Its impact is evident domestically and internationally in sectors such as energy, aerospace, real estate, healthcare, technology, infrastructure, and services.

Mubadala’s sole shareholder is the Government of the Emirate of Abu Dhabi. For more information about Mubadala, its partnerships and activities please visit www.mubadala.ae.

Jeffs and Their Mutts

Time Warner and GE could be the marrying kind.

It’s a hotly rumored corporate dalliance—that of CEOs Jeff Bewkes of Time Warner and Jeff Immelt of GE, parent of NBC Universal. No doubt their forefathers, the Warner brothers and Thomas Edison, are rolling in their graves. Back in their day, red-blooded businessmen were fighters, not lovers. Edison, who founded GE and controlled essential motion-picture patents, practically forced the Warners to pull the plug on their earliest foray into the movie business when the brothers couldn’t afford to pay Edison’s high fees on equipment to run their fledgling film-rental company.

But times change. If Edison and the Warners couldn’t afford friendly business dealings, Immelt and Bewkes may find it prohibitively costly to their careers to avoid cozying up. The two Jeffs have watched their stocks turn into, well, mutts (corny pun intended). And so they have begun preliminary efforts to explore a commingling of their entertainment assets—combining GE’s NBC Universal with Time Warner—in hopes of eventually igniting investor enthusiasm and pumping up their stock prices, according to media-industry executives familiar with the developments but not authorized to comment.

Time Warner and GE executives have been considering such nuptials since the late 1990s. The then CEOs Gerald Levin of Time Warner and Jack Welch of GE came the closest before getting cold feet. Their immediate successors, Richard Parsons and Immelt, considered reviving a deal, according to the NEWSWEEK sources. Now, those executives say, the idea is among the most intriguing in a range of topics that came up in a conversation between Immelt and Bewkes. A GE spokesman denies the subject arose; Time Warner declined to comment on this story.

In the past, Immelt has emphatically denied any interest in divesting NBC Universal, which, in addition to NBC and Universal Studios, includes the surging cable networks USA and Sci Fi. The two sides are not currently negotiating, according to the NEWSWEEK sources. At the same time, however, these executives indicate that things are most likely to heat up in the fall, after NBC Universal wraps up coverage of the Summer Olympics in China—an undertaking in which the industrial giant and the media unit have massive financial interests at stake. That also would give Bewkes several more months to try to achieve his top priority: ferreting out a deal that unlocks whatever value remains in AOL and rids him of the troubled Internet unit.

Two of the largest and most prominent members of corporate America, Time Warner and GE were prototypes of what once seemed an ideal business model: the conglomerate. A diversified behemoth with interests that ranged from jet engines and plastics to the “Today” show and CT scans, GE reigned for years as a paragon of corporate management. Meanwhile, Time Warner helped pioneer the “vertically integrated” media empire, controlling the means to make and deliver a sprawling array of news and entertainment offerings—including the Warner Bros. movies, HBO, CNN and Time.

Yet in the new millennium, conglomerates have fallen out of favor on Wall Street. Compounding the problem for Time Warner and GE have been an assortment of specific woes. In Time Warner’s case, it was the near-fatal combination in 2001 with AOL. For GE, it’s been the lackluster performance of its insurance business, its iconic appliance-making unit and its mammoth financial-services subsidiary. So far, the two companies’ continuing efforts to boost their stock prices—Time Warner is spinning off its cable operations; GE has sold its insurance business and now has its appliances division on the block—have been underwhelming.

If the two sides have, in fact, narrowed a time frame for beginning formal talks, they also appear to have in mind a solid idea about how to possibly structure a transaction, according to the NEWSWEEK sources. A goal for GE would be to avoid the huge tax bill it would incur in selling NBC Universal outright to Time Warner in a transaction valued in the tens of billions of dollars, say the sources familiar with the situation. One model for such a transaction might be the deal GE struck in 2003 to bulk up NBC by combining it with Universal, then owned by Vivendi. That combination left the French company with a hefty, though minority, 20 percent stake in NBC Universal.

Under a similar scenario, Time Warner and GE could combine most, if not all, of their entertainment operations into a newly formed separate company, in which Time Warner would be the majority owner. The bet is investors would better recognize the value of a pure entertainment entity with big media brands, propelling the stocks of parent companies Time Warner and GE. And if that happens, the two Jeffs might just live out their corporate careers happily ever after.

General Electric is planning to sell its appliance division, one of the oldest businesses in the conglomerate’s 120-year history, people briefed on the proposal said Wednesday.

A sale of the unit, which makes refrigerators, microwaves and washer-dryers, among other items, could fetch at least $5 billion, these people said. GE and its investment bank, Goldman Sachs, have been laying the groundwork for an auction over the last few weeks.

The appliance unit, which helped make GE an American icon, may end up in foreign hands. Wall Street bankers are rushing to lay claim to potential bidders, and the expected suitors include Haier of China, which bid on Maytag two years ago; LG Electronics and Samsung, both of South Korea; Bosch of Germany; Electrolux of Sweden, which makes Sears’s Kenmore line of appliances; and Controladora Mabe, a GE partner based in Mexico.

The sale would mark the end of a brand of household products that made General Electric a fixture in American homes over the last century.

Jeffrey Immelt, its embattled chief executive, has been trying to refashion General Electric in the face of widespread calls to break up one of America’s largest companies. That mission has taken on greater urgency with the credit squeeze and the slumping economy, which have affected many of GE’s businesses.

The division, based in Louisville, Kentucky, has faced increased pressure in recent years from Chinese manufacturers, which have been growing at double-digit rates thanks in part to significantly lower costs.

Asian manufacturers are expected to be particularly drawn to the division, seeking to take advantage of GE’s widely known brand name as they try to become global businesses. Lenovo, the Chinese electronics company, successfully acquired IBM’s personal computer division in 2004, in part to help establish itself on the world stage.

As part of a potential sale, GE is likely to hand over a license to use the GE brand for a short period of time, the people briefed on the proposal said. After the initial license for using the General Electric brand expires, the buyer of the appliance unit would be allowed to continue to use the Monogram and Profile badges.

The arrangement is similar to the way Lenovo held onto the IBM badge for several years before using its own.

The news was first reported on Wednesday by The Wall Street Journal on its Web site.

GE’s once high-flying stock price has fallen 20.5 percent during Immelt’s seven-year tenure, and many analysts and investors have called for transformational changes at the corporate behemoth. Last year, it sold its plastics business to Sabic, the big Saudi Arabian industrial company, for $11.6 billion.

Immelt’s critics long have urged him to consider more unit sales, including the appliance unit, NBC Universal and GE Money, the company’s consumer finance unit. The company has focused on higher-growth technology businesses of late, moving out of consumer-oriented operations. GE’s light bulbs, however, continue to be made by the company’s lighting division.

That critical chorus grew louder and more insistent last month when GE’s first-quarter earnings badly missed analysts’ estimates and its own projections.

GE’s stunning announcement, made more notable by its status as a barometer of the economy, shook Wall Street’s confidence: the company’s shares fell 13 percent that day, its biggest one-day loss in two decades. Even worse, for a company that prided itself on meeting expectations, GE was forced to cut its projected earnings growth for this year to 5 percent from 10 percent.

The appliance business generated $7 billion in revenue last year, only a small fraction of GE’s $173 billion in total annual revenue, but divorcing it from the company would carry great historical import. Begun in 1907 as a maker of cooking and heating appliances, it has since grown to manufacture a broad range of products. Among its firsts are the room air-conditioner (1930), the combined washer-dryer unit (1954) and the toaster oven (1956).

As of last year, the appliances unit had about 13,000 of GE’s 327,000 employees.

GE unit to buy CitiCapital

April 17, 2008: 10:29 AM EDT

Citi sells off seven of its ‘non-core’ business divisions for undisclosed price in cost-cutting move.

NEW YORK (AP) — General Electric Co. reached a deal to buy Citigroup Inc.’s commercial lending and leasing business – CitiCapital – for an undisclosed price, the companies said Thursday.

General Electric’s GE Capital division is buying seven lending units from Citi: healthcare, private-label equipment, material-handling, franchise, construction equipment, bankers leasing and the Canadian division.

The acquired businesses have $13.4 billion in assets, 160,000 customers in North America and 1,400 workers.

Citi said the deal is part of the company’s plan to jettison “non-core” businesses to focus on the most profitable opportunities.

After losing nearly $10 billion in the fourth quarter, Citi embarked on a plan to raise cash by selling stock and bonds, cutting its dividend and selling some of its businesses.

The bank has sold stakes in Redecart and Simplex Investment Advisors, and cut some investments from its portfolio. The company’s assets shrank by $176 billion in the fourth quarter.

GE called the CitiCapital deal a “significant growth opportunity.”

“It’s a business we know how to grow,” Mike Neal, chief executive of GE Commercial Finance, said in a statement.

CitiCapital’s tax-exempt finance business is not part of the deal.

The companies expect the acquisition to be completed by the third quarter.

Stocks fall in Europe and Asia

By David Jolly
Monday, April 14, 2008

PARIS: Stocks fell Monday in Asia and Europe and the dollar fell against other major currencies, after a weekend meeting of Group of 7 finance ministers and central bankers concluded without any major initiatives to combat the global credit crisis.

“People were expecting a more coordinated response on the problems in the credit markets,” said Bilal Hafeez, global head of currency strategy at Deutsche Bank in London. In the absence of that, the reaction in the markets has been disappointment, he said.

In their communiqué, G-7 officials said “the turmoil in global financial markets remains challenging and more protracted than we had anticipated,” and they called for financial institutions to “fully and promptly disclose their risk exposures, write-downs, and fair value estimates for complex and illiquid instruments.”

A sobering earnings report from General Electric that hit U.S. and
European stocks Friday continued to be felt Monday. Shares of GE,
the giant U.S. conglomerate, fell 13 percent Friday after it said its
finance business had been hurt because “the extraordinary disruption
in the capital markets in March affected our ability to complete asset sales
and resulted in higher mark-to-market losses and impairments.”

An earnings report from Philips Electronics cast a pall on the technology sector. The Dutch company said that its North American sales fell 9 percent because of weakness in its flat-panel TV business. The shares fell 2.9 percent.

In Paris afternoon trading, the DJ Euro Stoxx 50 index, a barometer of euro zone blue-chip companies, was down 0.6 percent, while the FTSE 100 in London was down 0.7 percent. The DAX in Frankfurt was down 0.7 percent, while the Paris market benchmark CAC 40 was 0.4 percent lower.

Asian shares fell sharply, with the Nikkei 225 stock average in Tokyo closing nearly 3.1 percent lower, the Hang Seng index in Hong Kong falling 3.5 percent and the S&P/ASX 200 index in Sydney falling 1.8 percent. The Shanghai composite index plunged 5.6 percent.

Japanese banks were among the big losers. Mitsubishi UFJ, the largest Japanese bank in terms of market capitalization, fell 3.7 percent. Sumitomo Mitsui Financial Group fell 4.2 percent. As a group, Asia-Pacific banks have fallen more than 10 percent this year.

“The problem is slowly changing from the financial sector to the rest of the economy,” said Valérie Cazaban, a fund manager at Stratège Finance. “Now we’re going to price a recession into the market.”

“Everyone was afraid of a systemic crisis, but that’s looking less likely now,” she added.

In Washington, G-7 officials noted concerns about the weakness of the dollar, saying they “continue to monitor exchange markets closely, and cooperate as appropriate.” They also expressed concern about “sharp fluctuations in major currencies,” saying they were “concerned about their possible implications for economic and financial stability.”

Hafeez said the G-7 statement on currencies did not represent a big change in language, so there appeared to be little prospect of coordinated intervention in support of the dollar.

“The euro is creeping back up toward where it was” before the weekend meetings, Hafeez said. “I think it’s likely to hit new records against the dollar.”

The dollar fell. The euro rose to $1.5840 from $1.5803 Friday in New York, and not far from the record $1.5911 set last week. The pound rose to $1.9870 from $1.9698. The dollar slipped to ¥100.90 from ¥100.94 and to 0.9975 Swiss francs from 1.0002 francs.

Credit market conditions remained tight. The Euribor rate for three-month unsecured lending in euros between European banks reached a three-month high on Monday, Reuters reported. The rate, at 4.753 percent, up from 4.747 percent Friday, marked the highest level since Dec. 27, despite efforts by the European Central Bank to calm the market.

The G-7 officials’ concerns have registered with global banks, developments showed. Wachovia, one of the largest U.S. banks, said Monday that it would raise $7 billion through a share sale to replenish capital depleted by mounting housing losses and the ill-timed acquisition of a big California mortgage lender. It also reported a loss of $393 million for the first quarter and said it was cutting its dividend.

And a report in The Wall Street Journal said that Deutsche Bank was seeking to sell $20 billion of leveraged loans to clear up its balance sheet. Ronald Weichert, a spokesman for the German bank, declined to comment on the report.

Nymex oil futures for May delivery rose 88 cents to $111.02 a barrel. Comex gold futures for April delivery rose $4.40 to $928 an ounce.