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Hello. I'm Dr. Michael McDonald.
I'm an associate
professor of finance
at Fairfield University in
Fairfield, Connecticut,
and today, I'd like to talk
to you about General Electric
and how this case illustrates
spinouts and conglomerates
and the value and
complexity therein.
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A little bit of background
on General Electric.
GE has been around for
more than a century,
but in the 1980s,
an era that I'll refer to
as the Jack Welch Era,
the company was led by
legendary CEO Jack Welch.
GE became a global
conglomerate under Jack Welch,
and Welch ran the firm
from 1981 through 2001.
He helped to expand
the company's business
into finance, in the
form of GE Capital,
into healthcare, energy,
aviation and media,
and the market capitalization
of the firm soared
from $14 billion at the
start of his tenure
to over $400 billion by the end.
At the end of Welch's tenure,
GE was the largest
company in America
by market capitalization.
Then GE's successor,
Jeff Immelt, took over,
and Immelt faced challenges.
Immelt ran the firm
from 2001 through 2017,
but his oversight of the
company saw several hurdles
the company faced.
In particular, GE Capital
had a crisis in 2008,
which essentially led to
the firm being
significantly handicapped.
GE also faced struggles
in power, oil and gas,
and its industrial businesses,
and GE started to shed
assets like NBC Universal
and its appliance business,
but it remained bloated
and inefficient.
As a result, a new
CEO, John Flannery,
came to replace Immelt
as CEO in 2017,
but he only lasted about a year
before the board ousted him,
perhaps due to not
moving rapidly enough
to reform the firm.
More importantly, from the
point of view of investors,
GE's stock price plummeted
from $60 a share,
roughly in 2000,
to under $10 a share in 2018.
Of course, this was
during a period where
the rest of the
market was going up,
so that underperformance
was even worse.
Then, starting in 2018,
the board appointed yet
another new CEO, Larry Culp.
With that background,
GE at that point had high
debt, declining profits,
and, of course, very
skeptical investors.
Culp was appointed
as CEO in 2018,
and his mandate was really to
restructure General Electric.
