GEWatcher9 "Strategic Portfolio Management Continues"

One of the major reasons, that Jack Welch was so successful was that he had the strategic instincts to know what he liked and made deals that focused on his priorities. Nothing and no one was sacred and Welch didn't let fondness for any one business stand in his way in making tough strategic decisions.

I believe that his ability to acquire RCA at a bargain price and then package RCA's strong consumer electronics brand and businesses with the weaker GE brand and make a strategic deal with Thomson of France, was one of this defining moments.

WIN/WIN. Welch got the Thompson Medical Systems business, which he loved, and got rid of the consumer electronics business, which he hated. While Thompson enhanced its world wide consumer electronics business. Both were happy!

Jeff Immelt and his team have taken similar steps in the Consumer and Commercial Financial arenas. Recognizing the vulnerability of the consumer financial markets and their declining margins, Immelt had done the following:

• "GE yesterday agreed to sell its corporate charge card unit to American Express Co. for $1.1 billion. It also agreed to swap GE Money units in Germany and the U.K. to Spain's Banco Santander SA in exchange for Italian commercial lender Interbanca, which is valued at 1 billion euros ($1.58 billion)."
  GE Money, as it was exiting WMC last year, agreed to buy part of UniCredit SpA's Bank BPH unit in Poland for 625 million euros ($893 million). In September, GE Money said it would invest $200 million in India by 2011. The sale of the corporate payment services unit to American Express should result in a gain of $200 million to $300 million, or 2 cents to 3 cents a share, and is included in GE's first- quarter forecast of 50 cents to 53 cents a share, Lehman Brothers analyst Robert Cornell, Goldman Sachs analyst Deane Dray and JP Morgan Analyst Stephen Tusa wrote in a notes yesterday and today.
• It's not an exit from consumer finance, it's part of a really deliberate strategy that comes from a pretty clear agreement with Jeff,'' Cary, 48, said yesterday. GE Money competes with the commercial-finance division for capital to be invested in higher-return areas." (http://www.bloomberg.com/ March 28, 2008)
  

Sound Strategic Portfolio Management.

I applaud these moves, since I have never been a strong advocate of the GE Consumer business and have believed that GE's strengths were in the commercial and industrial financial arenas, where it can combine its technical, market and financial skills to gain a competitive advantage.

This is sound strategic thinking portfolio management and is consistent with GE's past successes. It clearly demonstrates that Immelt and his team are continuing to assess their portfolio and willing to make strategic, longer term decisions and is not wed to any one business, even if it has been successful in the past. The divestiture of the "once beloved GE Plastics" was another example of this willingness to move ahead and not protect "fond" memories.

As a GE investor and alumni, I hope that this type of selectivity and portfolio management will enable the company to increase its disappointing stock performance.

Bill Rothschild, CEO Rothschild Strategies Unlimited, LLC (specialists in helping clients enhance their strategic thinking and decision making skills) and author of global bestseller: The Secret to GE's Success".