GE to Sell Appliance Unit

GE is planning to sell its appliance division, one of the oldest and least glamorous portions of the conglomerate's huge and disparate holdings. Apparently, CEO Jeffrey Immelt is facing increasing pressure to divest some underperforming businesses to appease shareholders who were angered at the company's disappointing earnings announcement. Mr. Immelt had the audacity to miss earnings guidance just a few weeks after giving a chipper view of the company's outlook. Furthermore, as I reported here a few weeks ago, Mr. Immelt faced the indignity of being scolded on national television by his former boss, Jack Welch, who publicly derided the new CEO for accurately reporting GE's results. After the public flogging, I'm certain that Mr. Immelt regretted selling off the insurance business several years ago, since he could no longer borrow from insurance reserves (as his former boss had done for many years) to boost earnings results to satisfy Wall Street analysts.
Frankly, I don't know if it a good idea for GE to sell its appliance unit. I'm sure it's good for the investment bankers who will earn a few bucks. Investment banks love companies that are constantly buying and selling units. So many "synergies" and "strategic alliances" to nurture, while at the same time "unlocking value" and "focusing on core competencies." These are just the catch phrases I've heard of, but any good one will do as long as the churn continues.
I have a suggestion for Mr. Immelt on how to raise $25 billion dollars. Go through the balance sheet and sell every asset that is labeled as "other." I took a look at GE's 10-K after the earnings miss recently and tried to determine if I could figure out its holdings from looking at the balance sheet. Although GE is often described as an industrial conglomerate, it is actually a huge financial services firm with no regulatory capital requirements or ability to borrow from the Fed if it runs into trouble. Intellectually, I have an interest in determining where GE's exposure lies. The most interesting thing about my analysis was the many categories labeled as "other" on the balance sheet. When I scrolled down to the appendix, I was surprised to find that within the descriptions of the "other" categories were further sub-categories labeled as "other." Adding up all the sub-categories yielded a grand total of $25 billion worth of assets without any detailed description. Perhaps that seems like a trifle for a company that has $800 billion in assets? But it represents about 21% of GE's book value. Maybe Mr. Immelt would consider "unlocking" some of that value?

Welch Retracts Credibility Statement, Now Claims Immelt Going to Hell

Wait a minute. What? He said he's a "hell of a CEO?" Oh. I'm sorry. I guess I must've misinterpreted his statement. Just like Welch claims he was misinterpreted when he announced to the financial universe yesterday that Immelt had a "credibility problem" on live television. I'm guessing GE stopped paying for Welch's use of a good PR agent when it redesigned his retirement package after it was leaked to the media during his highly publicized divorce. However, it's nice of GE to give Welch more airtime to apologize for bad-mouthing the CEO for being honest with investors. Who has the credibility problem now?

Former GE CEO Welch Advises Immelt to Manipulate Earnings

Jack Welch was on CNBC this morning criticizing Immelt, claiming that he had a "credibility issue." Welch asserts that Immelt promised to deliver strong earnings three weeks ago and he didn't deliver on that promise. I believe what Welch is saying is that Immelt should have used some fancy accounting tricks to artificially boost earnings in order to satisfy Wall Street analysts, just like Welch did when he was CEO. Ever wonder how GE beat earnings by a penny for many years under Welch's reign and achieved spectacular returns? It under-reserved insurance reserves for years, thus artificially boosting earnings. Welch conveniently retired, taking an egregious retirement package which became public during divorce proceedings from his second wife who he left for a much younger woman. Immelt then had to boost reserves to an adequate level in order to sell the insurance arm, basically wiping out most of the earnings gains from Jack Welch's last five years in office.

Although GE's earnings were a disappointment, and Immelt should've been more conservative when giving guidance, he did the right thing by reporting lousy earnings. I'm not a huge fan of GE in particular, but I actually believe that Immelt is a much better CEO than Welch ever was. Welch was lucky, and crafty. In my opinion, he is also mostly responsible for the absurd CEO packages awarded to CEOs for doing mediocre work. When GE was picking a successor for Welch, Welch made certain all three contenders for his job received enormous retention bonuses at GE, thus forcing other companies who wanted to hire the losers to offer absurd guarantees. Who was one of those contenders? Our friend Robert Nardinelli, who was recently forced out of Home Depot with $200 million in pay that he felt he deserved. Shareholders and the board disagreed. Maybe it is Immelt who should be giving Welch some much-needed advice: Get a hobby and stop telling me how to do my job.