July 25, 2008 / 7:24 PM / 11 years ago

GE restructures, but investors still on edge

BOSTON (Reuters) - General Electric Co (GE.N) kicked off a major round of restructuring on Friday, giving its booming infrastructure business — which is riding a wave of emerging-market investment in energy and aviation projects — a more prominent role, and combining its sprawling finance operations into one unit.

The moves, which also set the stage for the planned spin-off of GE’s historic $13 billion appliance and lighting unit, will not silence calls on Wall Street for the second-largest U.S. company by market capitalization to revamp itself and spark its moribund shares, investors said.

But it could signal the start of a more extensive revamp, including a broader pull back from the volatile consumer finance market and a disposition of NBC Universal

media, analysts and investors said.

“It doesn’t take the pressure off,” said Peter Sorrentino, senior vice president and portfolio manager at Huntington Asset Advisors in Cincinnati, which manages $6.5 billion in assets and counts GE among its holdings.

“These businesses, I don’t care what buckets you put them in, we want results,” Sorrentino said. “I don’t care how you organize the deck chairs, is the boat sinking or are we running at full throttle?”

SIX UNITS TO FOUR

The moves combine what had been six GE segments, into four.

“With the announcement of our focus on a possible consumer and industrial spin-off, we can structure the company in a simpler way that can maximize future growth,” GE Chairman and Chief Executive Jeff Immelt said in a statement.

GE’s infrastructure arm, its largest business, splits into two divisions: GE Energy Infrastructure and GE Technology Infrastructure, which absorbs the health care division.

NBC Universal media remains a stand-alone segment.

All of GE’s consumer and commercial finance operations — both the stand-alone GE Money and GE Commercial Finance divisions and the industry-specific finance arms that had been tucked inside other GE divisions — will merge into one unit called GE Capital.

“That is certainly a positive, putting the financial services businesses together,” said Matt Collins, capital goods analyst at Edward Jones in St. Louis. “That should help investors get an absolutely clear sense of how financial is doing versus industrial.”

When GE stunned Wall Street with its unexpected drop in first-quarter profit, the company attributed the shortfall to troubles at its finance arms. Since then its shares have tumbled, and remain down 22.5 percent for the year — deeper than the 14.3 percent slide of the blue-chip Dow Jones industrial average — even after a return to profit growth in the second quarter.

Investors attribute much of the slump in GE’s shares this year to worries about the sprawling finance arms. GE also on Friday said it had received notice from the U.S. Securities and Exchange Commission that it was contemplating civil action against the company over the way certain former employees of its finance operation bid on municipal securities.

The Fairfield, Connecticut-based conglomerate has taken several steps back from consumer finance, including a deal earlier this month to sell its Japanese consumer-finance arm to Shinsei Bank (8303.T) and a plan to exit its $30 billion U.S. private-label credit-card business.

KRENICKI RISES

John Krenicki, who had headed up GE’s Energy unit, which makes products from gas turbines to windmills, has been promoted to vice chairman of GE Energy Infrastructure.

That brings GE’s roster of vice chairmen to four. The others are John Rice, who heads GE Technology Infrastructure, Mike Neal, who heads GE Capital and Chief Financial Officer Keith Sherin.

Earlier this year, two GE vice chairman — Industrial head Lloyd Trotter and former NBC chief Bob Wright — retired.

The fact that Jeff Zucker, who heads NBC Universal media business, does not hold the vice chairman rank, prompted some analysts to wonder if GE is considering selling or spinning off that business, of which France’s Vivendi (VIV.PA) owns 20 percent.

Immelt has repeatedly said he has no interest in selling NBC, which reported 1 percent second-quarter profit growth.

“This is part of the staging for what’s coming,” said Sterne Agee analyst Nicholas Heymann, who rates GE a “hold.”

Heymann, who early in his career worked for GE, said Friday’s restructuring could set the stage for the conglomerate to exit most of the rest of its consumer finance business, as well as NBC Universal, to refocus itself as an infrastructure company with an infrastructure finance arm.

That kind of dramatic move -- talked about often on Wall Street -- could spark GE's shares, Heymann said. GE stock is down 17 percent over Immelt's almost seven years at the helm, a time period when the broad Standard & Poor's 500 index .SPX is up 14 percent.

GE shares ended unchanged at $28.71 on the New York Stock Exchange on Friday.

“Jeff understands, he’s got to announce all this by the end of this year and then turn around and have it all effected by the end of next year to be able to make sure the stock goes someplace,” Heymann said.

Editing by Leslie Gevirtz, Gunna Dickson and Carol Bishopric

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