GE Gives Activist Trian a Seat on the Board -- 2nd Update
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.
The move comes a week after GE's longtime leader, Jeff Immelt, resigned from 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.
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.
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 Praxair 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 at 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 to focusing on its core business of building and servicing large machines like jet engines and MRI scanners. He exited struggling and lower-margin businesses, such as appliances, and navigated the financial crisis, but the stock lagged behind rivals and the strength of the broader market.
On Friday, GE said CFO Jeff Bornstein will 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 Lombardi 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
(END) Dow Jones Newswires
October 09, 2017 10:13 ET (14:13 GMT)