GE investors wonder if breaking up is hard to do

By Scott Malone

BOSTON (Reuters) - Investors wondered on Monday whether General Electric Co could help its languishing shares -- now near 4 1/2-year lows -- by selling off large chunks of its diversified portfolio of businesses.

J.P. Morgan analyst Stephen Tusa, one of the loudest voices on Wall Street advocating for a GE breakup, argued in a note that the second-largest U.S. company by market value has become too complicated for investors to understand with any degree of confidence.

"For investors to ever get comfort, there needs to be more transparency, which would be accomplished probably only through a dramatic portfolio restructuring," Tusa wrote in a note to clients.

Some GE investors agreed the time may have come for the company to consider big changes.

"Having a more focused organization probably would benefit that organization," said Peter Klein, senior portfolio manager at Fifth Third Asset Management, which manages about $20 billion in assets and holds GE shares.

"Whether it was focused on media or focused on financials or focused on manufacturing ... management at least ought to entertain that approach that says, 'Let's separate them and see what would happen.'"

GE shares have tumbled more than 20 percent since the company stunned Wall Street in April with an unexpected drop in first-quarter profit. In afternoon trading they slipped 5 cents to $29.10, after earlier hitting a 4 1/2-year low of $28.38 on the New York Stock Exchange.

BROAD LINEUP

The conglomerate's lineup of businesses includes manufacturing jet engines, producing television shows, and making consumer loans in emerging Asian economies. It is currently in the process of selling its century-old appliances arm, as well as parts of its consumer-lending operation.

The Fairfield, Connecticut-based company needs to go further and consider divesting more of its consumer finance and NBC Universal media businesses and perhaps spinning off its health-care operation, Tusa wrote. A full restructuring, in this scenario, would leave just GE's infrastructure arm -- which makes heavy equipment including turbines for power plants and railroad locomotives -- and the portions of its commercial finance business that serve that unit.

GE shares have fallen 28 percent during the almost seven-year tenure of Chairman and Chief Executive Jeff Immelt, underperforming the blue-chip Dow Jones industrial average and broad Standard & Poor's 500 index, and undercutting advocates' argument that the breadth and variety of its operations offers investors security.

BREAKUP NOT EASY

Still, investors noted there is no guarantee that returns would improve if the company started selling off large swaths of itself. Facing a broad stock market slump and a credit crunch, selling divisions with tens of billions of dollars in revenue could be a challenge.

"It's very tough to manage a conglomerate. It's also very tough to break one up. It's hard to guarantee that would be more beneficial to shareholders than to try to get the existing businesses to operate at a higher level," said Eric Schoenstein, principal at Jensen Investment Management in Portland, Oregon, which oversees about $3 billion in assets and holds GE shares.

Under Immelt's leadership, GE has sold off businesses that generated about $52 billion in revenue, including its plastics and insurance arms, as it sought to move away from slower-growing and more volatile market segments. It has also acquired businesses with about $80 billion in revenue, in sectors including energy and aerospace.