Concession to Trian comes as new CEO seeks to stem slide, overhaul leadership
This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (October 10, 2017).
Bowing to mounting pressure, General Electric Co. is giving activist investor Trian Fund Management a seat on its board as the industrial company looks for ways to revamp its operations and reverse its slumping stock price.
The concession comes a week after GE’s longtime leader, Jeff Immelt, resigned as chairman and left the company’s board. Since taking over as CEO, John Flannery, who is now chairman too, has been moving aggressively to break with the past, replacing GE’s finance chief and two other senior leaders on Friday.
The GE veteran is also expected to unveil his restructuring efforts and reset financial targets in November, according to people familiar with the matter. They include a plan to generate more savings than the $2 billion previously targeted by the end of 2018, the people said.
The new GE chief is under pressure to share with investors his plans to cut costs and boost profits at a company whose shares have fallen more than 25% so far this year, missing out on a broad stock market rally and erasing more than $50 billion in market value. The shares fell 3.9% on Monday to $23.43, their lowest close in more than two years.
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Trian first invested $2.5 billion in GE in 2015 in what was portrayed as a collaborative move. But the investor has been unhappy with GE’s stock performance and restructuring efforts under Mr. Immelt, who stepped down as CEO on Aug. 1.
GE began serious discussions about giving Trian co-founder Ed Garden a board seat six months ago after it became clear company executives “couldn’t execute themselves out of that discussion,” one person familiar with the matter said Monday.
Mr. Immelt didn’t have a say in the board’s final decision to appoint Mr. Garden, this person said. In any case, this person said, Mr. Immelt “wasn’t going to enjoy sitting around with them [Trian officials] in the room.”
Mr. Immelt didn’t respond to a request for comment.
For Trian, GE’s decision comes a day before the largest proxy battle in history is expected to be decided as it wages a high-profile fight for its co-founder Nelson Peltz to take a board seat at Procter & Gamble Co.
Mr. Garden, who had worked closely with Mr. Immelt and departing finance chief Jeff Bornstein, is currently on the board of Bank of New York Mellon Corp. and Pentair PLC.
“Like other GE shareholders, I am disappointed by the recent performance of GE’s stock,” Mr. Garden said in a statement. He succeeded former Deere & Co. CEO Robert Lane, who retired Monday from GE’s board after 12 years. The board has 18 members.
GE has proven a drag on Trian’s performance this year, given the investment has been among the biggest bets in a portfolio of eight stocks. The value of Trian’s GE position Monday is about $1.7 billion, down from $2.1 billion at the end of December, according to public disclosures, even though Trian has bought more shares this year.
Trian’s flagship fund was up 4% for the year, after expenses, through Friday, according to a person familiar with the matter, significantly underperforming the S&P 500 index, which has returned 16% including dividends.
Trian will now have access to GE board’s deliberations and detailed financial results, just as the nearly 300,000-person company is conducting a strategic review of its business portfolio and deciding how to cut costs and spend its cash. Mr. Flannery’s initial moves include cutting corporate staff, delaying construction of part of GE’s new Boston headquarters and moving to sell its fleet of corporate jets.
Under Mr. Immelt, GE shifted its focus back to its core industrial units, which make everything from jet engines to MRI machines, while using a series of acquisitions to push deeper into the oil business. Mr. Immelt sold off NBCUniversal and GE’s appliances business while also scaling back its financing arm, which once was one of the country’s biggest lenders.
Some GE investors and analysts have questioned whether the latest changes meant that GE’s longstanding dividend could be altered to free up cash.
“The dividend remains a top priority,” GE spokeswoman Deirdre Latour said Monday.
With the Trian appointment, GE’s board also is heeding criticism that it bears some blame for its poor shareholder returns, one former GE executive said. Appointing Mr. Garden “takes a little bit of pressure off the board,” the executive added.
Earlier this year, Messrs. Garden and Peltz met with Messrs. Immelt and Bornstein to push them on cost-cutting targets that were ultimately announced in March, people familiar with the matter said. Trian raised the possibility it would seek a board seat for Mr. Garden, but wouldn’t if GE management proved it could make the savings hit the bottom line, the people said.
But when Mr. Immelt in May seemed to walk back a long-term profit target, and the market began sending the stock down, Trian’s executives stepped up their effort to get a board seat, the people said.
GE wanted to avoid the distraction of a potential proxy fight and no directors opposed Mr. Garden’s selection, though some were more encouraging than others, one person said.
Some argued GE has so much restructuring to do that it cannot spend six months battling Trian, this person added. Mr. Garden’s appointment “avoids a big fight and avoids a big distraction.”
Corrections & Amplifications Mr. Garden is currently on the board of Bank of New York Mellon and Pentair PLC. An earlier version of this article incorrectly stated that he was on the board of Praxair.
(END) Dow Jones Newswires
October 10, 2017 02:47 ET (06:47 GMT)