Peltz's Trian may win GE board seat, amid possible large restructuring of industrial giant
General Electric, is nearing a decision on whether to grant a board seat to Nelson’s Peltz’s Trian Fund Management, a move that signal that the company is contemplating a more radical downsizing of the conglomerate than previously disclosed, FOX Business has learned.
The decision by GE’s board of directors could be made in the coming weeks, and possibly before the end of the month, according to people with direct knowledge of the matter. Trian holds a .82% stake in GE, which is roughly $2 billion worth of stock making the activist investing firm among the firm’s biggest single shareholders, according to the latest public filing.
If the GE board agrees to give Trian a seat, it will likely be filled by Ed Garden, the fund’s chief investment officer and founding partner, rather than Peltz, these people add. It’s unclear if Trian would mount a proxy war to force its way on to the board, but people close to the deliberations between the two outfits say talks have been cordial and productive.
A GE spokesman had no comment on the possibility of Trian gaining a seat on the company’s board, but would not deny the discussions. A Trian spokesman also had no comment and wouldn’t deny the matter.
The move would be significant because inside Trian executives are coming to the conclusion that GE needs more intensive restructuring than has been previously announced either by its former CEO Jeffrey Immelt or the man who recently replaced him, John Flannery. GE, under Immelt, sold off most of its once highly profitable GE Capital unit, and under Flannery, the company is contemplating significant job cuts while the new CEO conducts a top-to-bottom review of the company.
Still shares of GE—once a Wall Street darling under former CEO Jack Welch—have been floundering in recent years as the company missed both profitability and cost cutting targets. By granting a board seat Trian, Flannery maybe now be contemplating a far bigger restructuring – including the sale of significant businesses – in order to improve share price. Immelt announced his retirement in June amid criticism from Trian for failing to meet cost cutting targets as its stock price continued to fall.
“It used to be that given GE great brand, the whole of GE was considered greater than the sum of its parts,” said one person with knowledge of Trian’s position on the stock. “Now people are starting to believe the sum of the company’s parts is where the value is and maybe this company needs a more radical change or be broken up.”
Garden, himself, recently suggested that a larger restructuring of GE is necessary to improve the company’s outlook, and that he might be playing a direct role in the effort. Speaking at the Delivering Alpha investment conference, he said: “GE is a collection of very good businesses. Some are very cyclical and you're in the bad part of the cycle. We need to improve the free cash flow and need to take out cost.”
The use of “we” was sign by some in the investment community that Garden was ready to join GE board in the near future.
Trian is among the most prominent of the so-called activist investment firm that take a stake in companies in an effort prod management to make substantial changes to improve share price. Peltz and his team prefer what they call a “constructive engagement” approach with corporate managers, where Trian executives begin by working with management to make what they believe are changes that will result in higher earnings and an improved stock price.
That said, Trian’s dealings have also been known to get testy. Peltz is currently lobbying for a seat on the board of Procter & Gamble to force greater cost cuts, which is being rebuffed by management and he engaged in a high profile proxy dispute with DuPont to break up the company. He initially failed in winning a board seat but Trian’s lobbying effort ultimately led to ousting of DuPont’s then CEO, Ellen Kullman, after she failed to meet performance targets.
GE, meanwhile, appears to be on better terms with Peltz and Garden, and the company would appear ripe for a massive downsizing. The breath of GE’s manufacturing and other business units is enormous; it includes oil, gas, renewable energy, aviation, healthcare, transportation, and a growing digital business. Despite its slumbering share price, GE remains one of the largest companies in the world ranked by revenue.
Though Immelt has received credit for resuscitating GE following a near death experience during the 2008 financial crisis, he could never bring GE’s stock back to heyday under Welch as profits remained sluggish and growth more subdued than in the past. Shares of GE declined Tuesday after a JPMorgan analyst Stephen Tusa said of GE financial outlook that “there is nothing that simple cost saves can't take care of.”