GE's stock hardly electric, hastening CEO's exit
The departure of Jeffrey Immelt as CEO of General Electric comes amid increasing stockholder discontent over the conglomerate's slipping share price. As the news of Immelt's exit broke Monday morning, the stock surged 3.5 percent.
Immelt, 61, has spent almost his entire working life at GE, rising to the top job in 2001, when he triumphed in a hard-fought contest to succeed Jack Welch -- who made the company a powerhouse with holdings ranging from jet engines to finance to media. During Welch's two-decade tenure, the company became the most valuable in the world in terms of stock valuation, up from 10th.
Despite a corporate overhaul that many lauded, Immelt has not had the same success as Welch did with the stock. In his 16 years at the helm, GE's share price advanced 24 percent, adjusted for splits. But at the same time, the broader market, as represented by the S&P 500 index, shot up 125 percent. And this year, GE is down 6.9 percent as the index climbed 7.7 percent.
John Flannery, 55, head of the company's health care unit, will assume the top job in August. GE said Monday that the corner-office shuffle is part of its succession plan. Immelt will stay on as chairman of the board until year's end.
The replacement of Immelt is marked by some vocal investor dissatisfaction. His biggest critic is Trian Fund Management, an activist investment group led by Nelson Peltz, which has compiled a 2.3 percent stake in GE. Peltz has complained that GE under Immelt has failed to cut costs sufficiently and has missed earnings targets. The company has said it will boost its earnings per share to $2 in 2018, but its current level is less than half that, provoking investor skepticism.
"Immelt's departure comes amid mounting investor impatience, particularly given the stock's under-performance relative to peers," wrote Morningstar analyst Barbara Noverini.
Immelt's tenure has been "an unmitigated disaster for shareholders," Barclays managing director Scott Davis told CNBC on Monday. Davis said he expects Flannery will break up many of GE's businesses, saying, "It's hard to imagine that you can see synergies between health care and power generation and aircraft engines."
The company is painting a rosier picture of Immelt's performance as CEO. "Jeff has positioned the company incredibly well for the future," said Jack Brennan, lead independent director for GE's board, in a statement. "He executed a massive portfolio transformation and navigated the company through economic cycles and business disruptions. Today, GE is a high-tech industrial company with a bright future."
Under Immelt, GE has sold off many of its disparate divisions to give it more of an industrial focus. Its biggest divestiture was GE Capital, which at one point generated the majority of the company's earnings. Immelt concluded that, in the wake of the financial crisis, holding a financial services giant would be a drag on profitability, given heavier federal regulation of the finance sector. He also jettisoned NBC Universal, the news and entertainment unit, as well as GE's appliances and plastics divisions.
In April, GE announced that it is shedding its light bulb business. GE was founded by Thomas Edison, inventor of the light bulb.
To bolster the industrial portfolio, Immelt recently bought the turbine business from France's Alstom and oil services provider Baker Hughes. Now, the company has placed its chips in three major areas: turbines, jet engines and medical imaging.
During his time as CEO, Immelt has periodically been ranked among America's most admired CEOs, due to his revamping of the massive company. He was touted as "America's Jobs Czar" in a 60 Minutes profile in 2011.
