GE Gives Activist Trian a Seat on the Board -- 4th Update

By Thomas Gryta and David Benoit Features Dow Jones Newswires

General Electric Co. named activist investor Trian Fund Management's co-founder Ed Garden to its board, the latest move by new CEO John Flannery to change the direction of the struggling industrial giant.

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The move comes a week after GE's longtime leader, Jeff Immelt, resigned as chairman and left the company's board. Since taking over, Mr. Flannery has been moving aggressively to revamp the conglomerate, replacing its finance chief and two other senior leaders on Friday.

The new GE chief is under pressure to share his plans to cut costs and boost profits at a company whose shares have fallen more than 20% so far this year, missing out on a broad stock market rally. Shares fell 3% in Monday morning trading to $23.65, nearing 52-week lows.

Trian first invested $2.5 billion in GE in 2015 in what was portrayed as a collaborative partnership. But the investor has been unhappy with GE's stock performance and cost-cutting efforts under Mr. Immelt, who stepped down as CEO on Aug. 1.

For Trian, getting on GE's board comes a day before the largest proxy battle in history as it wages a high-profile fight for its co-founder Nelson Peltz to take a board seat at Procter & Gamble Co.

"Over the last 90 days, I've met with numerous investors and I value their input and views," Mr. Flannery said in a statement, adding that he looks forward to working with Mr. Garden.

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Mr. Garden, who had worked closely with Mr. Immelt and former CFO Jeff Bornstein, is currently on the board of Bank of New York Mellon and Pentair PLC.

"Like other GE shareholders, I am disappointed by the recent performance of GE's stock," Mr. Garden said in his own statement. "I continue to believe that GE represents an attractive long-term investment opportunity with significant upside."

Trian will now have access to GE's board deliberations and detailed financial results, just as the more-than-300,000-person company is conducting a strategic review of its business portfolio and deciding how to cut costs and spend its cash.

Some GE investors and analysts have questioned whether change was needed at the board that supported Mr. Immelt in his 16-year tenure. Some questioned whether the latest changes meant that GE's longstanding dividend could be altered to free up cash.

"The dividend remains a top priority," said GE spokeswoman Deirdre Latour. Mr. Flannery has said no change would come to the payout, which the company puts at the top of its capital allocation list.

Mr. Garden replaces former Deere & Co. CEO Robert Lane, who is retiring from GE's board after 12 years. The board will have 18 members.

One person familiar with the situation drew distinctions between Trian's dealings with GE and P&G, noting that P&G has a turnaround plan in place while GE is still crafting one.

GE could ill afford the distraction of a proxy fight at a time that a new CEO is trying to develop a new strategy, this person said, and Mr. Garden could advise on the process since Trian has been actively involved for nearly two years.

When Trian seeks to work in tandem with boards, it often asks for years of background materials and board minutes in order to understand everything that has happened at the company. While GE has worked with Trian, there has been frustration that the company wasn't doing enough belt-tightening.

Earlier this year, GE pledged to cut $1 billion in annual costs from its industrial operations this year and next. Since being named to his new role, Mr. Flannery has been working closely with Mr. Garden in recent weeks, according to one person close to the situation.

Mr. Flannery likely recognized that "some of the things Trian was pushing are things that Flannery thinks he has to do," said a former GE executive.

At the same time, the ex-executive continued, GE's board also is heeding criticism that it bears some blame for its poor shareholder returns. Appointing Mr. Garden "takes a little bit of pressure off the board," the former executive said.

Mr. Flannery's early moves include cutting corporate staff, delaying part of its new Boston headquarters and moving to sell its fleet of corporate jets. The company is widely expected to cut its financial projections at a planned meeting in November.

GE was transformed under Mr. Immelt, moving from a sprawling conglomerate with big media and lending units to focusing on its core business of building and servicing large machines like jet engines and MRI scanners. He sold off NBCUniversal and the home-appliances business and scaled back its finance business after the financial crisis. But the stock lagged behind rivals and the strength of the broader market.

On Friday, GE said Mr. Bornstein, its CFO, will step aside on Nov. 1 and depart at year's end, as will veterans Beth Comstock, the head of marketing efforts, and John Rice, the company's top international executive. All three were top lieutenants to Mr. Immelt.

Cara Lombardo and Joann S. Lublin contributed to this article.

Write to Thomas Gryta at thomas.gryta@wsj.com and David Benoit at david.benoit@wsj.com

Corrections & Amplifications

This article was corrected at 12:56 p.m. ET because an earlier version incorrectly stated that Mr. Garden was on the board of Praxair in the seventh paragraph. Mr. Garden is currently on the board of Bank of New York Mellon and Pentair PLC.

Bowing to mounting pressure, General Electric Co. is giving activist investor Trian Fund Management a seat on its board as the struggling industrial company looks for ways to revamp its operations and reverse its slumping stock price.

The concession comes a week after GE's longtime leader, Jeff Immelt, resigned as chairman and left the company's board. Since taking over as CEO, John Flannery, who is now chairman too, has been moving aggressively to break with the past, replacing GE's finance chief and two other senior leaders on Friday.

The GE veteran is also expected to unveil his restructuring efforts and reset financial targets in November, according to people familiar with the matter. They include a plan to generate more savings than the $2 billion previously targeted by the end of 2018, the people said.

The new GE chief is under pressure to share his plans to cut costs and boost profits at a company whose shares have fallen more than 25% so far this year, missing out on a broad stock market rally and erasing more than $50 billion in market value. The shares fell 4% on Monday to $23.43, their lowest close in more than two years.

Trian first invested $2.5 billion in GE in 2015 in what was portrayed as a collaborative move. But the investor has been unhappy with GE's stock performance and restructuring efforts under Mr. Immelt, who stepped down as CEO on Aug. 1.

GE began serious discussions about giving Trian co-founder Ed Garden a board seat six months ago after it became clear company executives "couldn't execute themselves out of that discussion," one person familiar with the matter said Monday.

Mr. Immelt didn't have a say in the board's final decision to appoint Mr. Garden, this person said. In any case, Mr. Immelt "wasn't going to enjoy sitting around with them [Trian officials] in the room." Mr. Immelt didn't respond to a request for comment.

For Trian, GE's decision comes a day before the largest proxy battle in history is expected to be decided as it wages a high-profile fight for its co-founder Nelson Peltz to take a board seat at Procter & Gamble Co.

Mr. Garden, who had worked closely with Mr. Immelt and departing finance chief Jeff Bornstein, is currently on the board of Bank of New York Mellon Corp. and Pentair PLC.

"Like other GE shareholders, I am disappointed by the recent performance of GE's stock," Mr. Garden said in a statement. He succeeded former Deere & Co. CEO Robert Lane, who retired Monday from GE's board after 12 years. The board has 18 members.

GE has proven a drag on Trian's performance this year, given the investment has been among the biggest bets in a portfolio of eight stocks. The value of Trian's GE position Monday is about $1.7 billion, down from $2.1 billion at the end of December even though Trian has bought more shares this year.

Trian's flagship fund was up 4% for the year, after expenses, through Friday, according to a person familiar with the matter, significantly underperforming the S&P 500 index, which has returned 16% including dividends.

Trian will now have access to GE board's deliberations and detailed financial results, just as the nearly 300,000-person company is conducting a strategic review of its business portfolio and deciding how to cut costs and spend its cash. Mr. Flannery's initial moves include cutting corporate staff, delaying part of GE's new Boston headquarters and moving to sell its fleet of corporate jets.

Some GE investors and analysts have questioned whether the latest changes meant that GE's longstanding dividend could be altered to free up cash.

"The dividend remains a top priority," GE spokeswoman Deirdre Latour said Monday.

With the Trian appointment, GE's board also is heeding criticism that it bears some blame for its poor shareholder returns, one former GE executive said. Appointing Mr. Garden "takes a little bit of pressure off the board," the executive added.

Earlier this year, Messrs. Garden and Peltz met with Messrs. Immelt and Bornstein to push them on cost-cutting targets that were ultimately announced in March, people familiar with the matter said. Trian raised the possibility it would seek a board seat for Mr. Garden, but wouldn't if GE management proved it could make the savings hit the bottom line, the people said.

But when Mr. Immelt in May seemed to walk back a long-term profit target, and the market began sending the stock down, Trian's executives stepped up their effort to get a board seat, the people said.

GE wanted to avoid the distraction of a potential proxy fight and no directors opposed Mr. Garden's selection, though some were more encouraging than others, one person said. Some argued GE has so much restructuring to do that it cannot spend six months battling Trian, this person added. Mr. Garden's appointment "avoids a big fight and avoids a big distraction."

Write to Thomas Gryta at thomas.gryta@wsj.com, David Benoit at david.benoit@wsj.com and Joann S. Lublin at joann.lublin@wsj.com

(END) Dow Jones Newswires

October 09, 2017 18:11 ET (22:11 GMT)