GEs Corporate Strategy
rP os t
TB0383
Andrew C. Inkpen
General Electric’s Corporate Strategy
Like the premature obituary of writer Mark Twain, reports of the death of the conglomerate are often exaggerated. Diversified companies, straddling multiple industries, or even just different parts of one large sector, remain a dominant, if not always fashionable, feature of stock markets from the U.S. to continental Europe and Asia. But a new backlash against conglomerates suggests that a more lasting shift in investor preferences may be taking place—driven in part by the growing influence of hedge funds and private equity houses. In public markets, big has rarely appeared less beautiful.1
op yo Through the 1990s and 2000s, large diversified firms, often called conglomerates, largely fell out of favor with investors. Arguments against conglomerates ranged from complexity in management to the difficulties that analysts and investors had in understanding their operations. More recently, conglomerates have regained some respect. As the largest of the U.S. diversified multinational firms, General Electric Company (GE), with over
300,000 employees, generated a variety of opinions, such as:
Increasingly restive General Electric Co. shareholders, frustrated with six years of meager returns, are pressuring Chairman Jeffrey Immelt to break up the conglomerate. But some shareholders and analysts argue that GE’s sprawling businesses are better off together than apart. GE’s big umbrella, these investors say, can balance differing product and economic cycles, while helping all its businesses financially. And that would boost the stock price over the longer term.
tC
“The main appeal of GE is its diversification,” says Mark Demos, portfolio manager at Fifth Third
Asset Management, which owns 12.6 million GE shares. He says this isn’t the time to break up the company, because global economic trends and investor sentiment are moving toward bigger, more international companies such as GE.2
GE’s
TB0383
Andrew C. Inkpen
General Electric’s Corporate Strategy
Like the premature obituary of writer Mark Twain, reports of the death of the conglomerate are often exaggerated. Diversified companies, straddling multiple industries, or even just different parts of one large sector, remain a dominant, if not always fashionable, feature of stock markets from the U.S. to continental Europe and Asia. But a new backlash against conglomerates suggests that a more lasting shift in investor preferences may be taking place—driven in part by the growing influence of hedge funds and private equity houses. In public markets, big has rarely appeared less beautiful.1
op yo Through the 1990s and 2000s, large diversified firms, often called conglomerates, largely fell out of favor with investors. Arguments against conglomerates ranged from complexity in management to the difficulties that analysts and investors had in understanding their operations. More recently, conglomerates have regained some respect. As the largest of the U.S. diversified multinational firms, General Electric Company (GE), with over
300,000 employees, generated a variety of opinions, such as:
Increasingly restive General Electric Co. shareholders, frustrated with six years of meager returns, are pressuring Chairman Jeffrey Immelt to break up the conglomerate. But some shareholders and analysts argue that GE’s sprawling businesses are better off together than apart. GE’s big umbrella, these investors say, can balance differing product and economic cycles, while helping all its businesses financially. And that would boost the stock price over the longer term.
tC
“The main appeal of GE is its diversification,” says Mark Demos, portfolio manager at Fifth Third
Asset Management, which owns 12.6 million GE shares. He says this isn’t the time to break up the company, because global economic trends and investor sentiment are moving toward bigger, more international companies such as GE.2
GE’s