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GE Announces a Reorganization, Reducing its Business Units from Six to Four

Posted by: Jena McGregor on July 25, 2008

It’s been a busy few months for Jeffrey R. Immelt, the CEO of General Electric. After announcing a sale of the iconic GE Appliances division in May, a spin-off of the entire consumer & industrial division, which includes both its lighting and appliances businesses, and a joint venture with the sovereign fund Mubadala Development Co., he’s now announced a reorganization designed to simplify the sprawling conglomerate.

GE’s six business segments have been reduced to four, centered around what it calls its three “core industries”: infrastructure, finance and media. The move combines GE’s commercial and consumer finance divisions under one umbrella, splits off its energy infrastructure businesses into a separate unit, and combines the enterprise solutions business (left on its own after the announced consumer & industrial spin-off) with aviation, transportation and healthcare, which last week saw its head, Joseph Hogan, depart for Swiss electrical engineering company ABB Group. It will result in the promotion of John Krenicki, who has been running GE’s energy unit, to vice chairman of the newly formed energy infrastructure segment.

Some kind of reorganization was not unexpected. Immelt had said in past discussions with analysts that he was considering moving the aviation and energy financial services units back into GE Commercial Finance as a way to simplify the structure. He’s openly said he would be reallocating capital from GE Money, the consumer finance business, toward Commercial Finance, moves that are surely easier to do under one unit. And during GE’s conference call for the second quarter, when earnings met expectations and revenue beat them after a big first-quarter miss, Immelt outlined GE’s major industries in a slide called “Company going forward” that separated the energy and technology infrastructure businesses. Some analysts saw the move coming: “It is clear [management] is evaluating all options and we anticipate a reorganization in the near future,” wrote Credit Suisse analyst Nicole Parent in a research note.

All options, indeed. Immelt’s reorg is yet another sign that he’s taking big steps to steer the company, and shake it up, in a tough market after years of stock market malaise. By elevating energy to a separate unit, Immelt is saying a lot about the company’s commitment to this fast-growing area. Separating infrastructure into two divisions and combining financial services into one sends the smart signal to Wall Street that GE is focusing itself on infrastructure —its financial services exposure has weighed it down in recent months as that troubled sector has suffered. And finally, calling NBC Universal one of its core industries could quiet those investors still calling for GE to shed the peacock. Only time will tell if it will help reignite the share price.



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