The embattled US industrial giant plans to streamline its clunky operations. But does the plan go far enough? asks Alice Gråhns.
“What a painful embarrassment” for General Electric, says Brooke Sutherland on Bloomberg Gadfly. Its dividend “is as much part of its identity as light bulbs”. But now it has had to cut it – for only the second time since 1938.
This week the 125-year-old company’s new CEO John Flannery announced a 50% reduction in the quarterly payout. He also made clear that his predecessor’s promise last December of earnings per share of $2 by 2018 had been a pipe dream. Finally, he outlined a plan “for digging the industrial giant out of its current cultural and cash crisis”.
While investors were being placated with the “sacrosanct” dividend, they were reluctant to ask “tough questions”, as Lex notes in the Financial Times. Yet GE’s corporate machinations “have been headspinning” since the financial crisis. It ditched large parts of its banking operation, and made pricey bets on oil, gas and power equipment.
As a result of all this faffing about, GE’s financials became more and more convoluted, and are now practically “indecipherable”. Now that it’s finally become clear “how mediocre the core company is”, it’s time for a serious shake-up of the group’s unwieldy structure. Flannery’s plan is to make sales worth $20bn (including the lighting business founded by Thomas Edison) and focus on three core sectors: power, aviation and healthcare.
A revamp of the board should help, says Rob Cox on Breakingviews. Flannery claims it is “oversized, under-engaged and badly in need of a house-cleaning”. Too right – look how it allowed Flannery’s predecessor Jeffrey Immelt to spend so many years “overspending on dividends… and committing to too many second-rate businesses”. So it bodes well that GE will be getting rid of half the board’s 18 current directors.
Nevertheless, simplifying the business, and reversing the share price slide of 40% this year “will be far easier said than done”, says Charley Grant in The Wall Street Journal. After all, Immelt was “a serial reshaper of the portfolio”, too. That’s just it, says Brooke Sutherland. The revamp is underwhelming. We all knew GE would ditch the lighting division anyway, and other disposals look “piecemeal”.
The company remains “huge and highly diverse” and the power unit continues to grapple with “slumping demand”. This isn’t a departure from Immelt-style rejigging, and nowhere near the “full-scale break-up” that could “dramatically remake” the conglomerate. Investors shouldn’t rule out more dividend cuts, either – the reduced pay-out still cost around $4bn. “It’s not clear the company cut deep enough.”
Barbie considers a suitor
“To mangle a line from Dirty Dancing, nobody puts Barbie in the corner,” says John Foley on Breakingviews. “Except maybe Hasbro”, which reportedly wants to acquire rival toy-maker Mattel. The two largest toy makers in the US – their joint value is $16bn – “have decades of enmity to overcome”. Though Mattel’s Barbie and American Girl on the one hand, and Hasbro’s Disney Princess crowd on the other, now “have more dangerous foes than each other”.
Since Mattel made a hostile offer for Hasbro in 1996, which the target rejected citing competition concerns, a lot has changed. Mattel is now the smaller and less profitable of the two, while competition is a serious headache. Amazon and Walmart have muscled in on toy territory, and the doll market, in which the two firms have a combined 50% share, has barely expanded in a decade.
Hasbro may not have to pay too much to clinch the prize, say Sarah Halzack and Gillian Tan on Bloomberg Gadfly. All of Mattel’s major divisions saw dismal sales in the latest quarter, partly owing to the Toys ‘R’ Us bankruptcy. After earning nearly $1.4bn in 2013 and $823.5m last year, Mattel is expected to deliver just $459m this year.
It also makes sense to bulk up. The groups can use their combined scale to bolster their presence in emerging markets, which are expected to provide 62% of the growth in the global toy market over the next four years.
City talk
• Even Ultra Electronics’ equipment for warding off attacks by submarines “couldn’t stop its shares getting torpedoed by its stonking profits warning”, says Jim Armitage in the Evening Standard. The official reason was the drop-off in UK Ministry of Defence contracts. But the firm’s peers aren’t faring this badly from decisions from Whitehall. And if the problem was beyond the group’s control, why has CEO Rakesh Sharma departed?
In truth, the failure was the latest in a line of missed targets and delays. And chairman Douglas Caster will be an “unsatisfactory stopgap… too steeped in the business to bring in radical change”.
• Marks & Spencer’s Christmas adverts star Paddington bear, who keeps a marmalade sandwich in his hat in case of emergency. M&S itself just reaches for “another restructuring”, says Nils Pratley in The Guardian. Chief executive Steve Rowe is accelerating the store-closure programme and slowing down the expansion of its food division. “Both measures look sensible.”
Yet nobody is pretending the latest strategic shuffle is the final stage in delivering the “faster, more commercial M&S” that Rowe wants. His predecessor, Marc Bolland, invested heavily in logistics and digitalisation, but more is needed. M&S’s revamp just never seems to end.
• Rupert Murdoch, the boss of 21st Century Fox, has built his fortune buying businesses. He recently bid £11.7bn for the 61% of Sky he doesn’t already own.
But now he is “in an unfamiliar position: a potential sell-out to Disney of most of 21st Century Fox, including its 39% Sky stake”, says Alistair Osborne in The Times.
True, the talks have broken down, but it’s clear Murdoch will sell at the right price. And whatever culture secretary Karen Bradley’s complaints over Murdoch, she’s unlikely to make a similar fuss over a Sky bid from Mickey Mouse.