In Depth July 17, 2008, 5:00PM EST

GE's Immelt: an Ever-Hotter Throne

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Andreas Solaro/AFP/Getty Images

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.

McGregor is BusinessWeek's management editor.

With Frederick F. Jespersen and Susan Zegel in New York

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