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Wednesday, June 18, 2008

Cincinnati Money Manager Peter Klein: He's Singing In The Break Up G.E. Chorus

CINCINNATI (TDB) -- General Electric Co. traces its roots back to Thomas Edison, and the conglomorate is headed by another Ohio boy, CEO Jeff Immelt, who grew up in Cincinnati. GE's aircraft engine division is alongside I-75 in the Cincinnati suburb of Evendale, and the factory complex remains one of the state's largest employers and an a icon of Ohio's once-unmatched manufacturing might. But GE's stock is near 4 1/2-year lows, and a Fifth Third Bank money manager is wondering publicly if it is time for the corporate giant to start selling off big hunks of its holdings to raise the share price for investors. That should be news in Cincinnati -- home of both the bank and one of GE's largest divisions, along with thousands of GE investors and employees. Still, the local money manager's concern this week seems to have escaped notice by the local media.

Peter Klein, a senior portfolio manager at Fifth Third Asset Management, had this to say:

"Having a more focused organization probably would benefit that organization (GE). Whether it was focused on media or focused on financials or focused on manufacturing . . . management at least ought to entertain that approach that says, 'Let's separate them and see what would happen."

GE owns NBC Universal, but also makes railroad locomotives, appliances, power plant turbines and jet engines. Some say it is hard to see how owning Meet The Press (and finding a replacement for Tim Russert) and producing TV show mixes with manufacturing engines for Boeing airliners. Fifth Third's Klein was quoted in this Reuters business news story June 16 that pointedly raised the issue of whether it is time for GE make changes and shed some of its holdings.

[UPDATE: Fifth Third lost over 27% of its share value today. Asked why, some analysts were quipping: "Because it's open." GE fell 2.25%.]

1 comment:

  1. I don't think that GE needs to be broken up, but it could create "tracking stocks" which would enable investors to purchase selective parts of the company. This is what I recommended in my June 2007 article in Chief Executive Magazine:

    "GE gives the investor an opportunity to invest in selective sectors of the company and not just in the total company portfolio. In this scenario, GE decides to offer stock in its key areas/sectors. For instance, it creates separate stock offerings in GE Healthcare, GE Infrastructure, GE Money, GE NBC/Universal, GE Commercial Financing and other key components of the company. These would replicate the current building blocks of the company. So investors could invest in either the total company or selective parts of the company. This is not unrealistic since many companies have done this and have been successful in doing so. Of course, this will require more evaluation.

    · GE is major stockholder of new companies. The GE Corporation would continue. The company would only sell a part of the new companies and retain majority control over the businesses. I would recommend that GE retain 75 percent of the companies and sell the other 25 percent on the open market.

    · GE would focus on maintaining GE traditional success factors. Under this new scenario, the GE corporate staff would be significantly reduced and focused on a few key areas. For instance, the company would continue to work on succession plans for the key management positions in the company and especially the next CEO. The corporate staff would monitor external changes and help the subsidiaries anticipate and respond to change, as well as change the portfolio as required. It would continue to have companywide training at all levels, take stands on political issues as needed and continue the strong financial, strategic and manpower networks that have contributed to its past success.

    The anticipated results could be very positive to all of the key stakeholders. The stock should rise overall, the investor will have more options and the company will continue to retain its AAA rating and have a strong and deep bench.

    Bill Rothschild, author of The Secret to GE's Success and GEWatcher blog (