General Electric

No, I Don’t Know Where You Got That Idea From

welch.jpgThough the words “Jeff [Immelt] has a credibility issue” did indeed exit the mouth of Jack Welch yesterday on “Squawk Box,” the former General Electric CEO showed up on the CNBC morning show again today to clarify that under no circumstances should they have been misconstrued to mean that there are issues surrounding Jeff Immelt’s credibility. If that’s how you took it, WOW. Said Welch, “Much to my shock and horror remarks I made on Squawk Box about the performance of GE CEO Jeff Immelt were interpreted to mean the exact opposite of what I intended. You see, what you took as my suggestion that Immelt couldn’t manage a Taco Bell if his life depended on it was actually my way of saying the guy’s an outstanding CEO. Besides, Taco Bell is a tough operation to handle, trust me. The hours suck with the all night drive-thru. No one would know that better than me. I could tell you some stories.”
Welch did not, however, take back his threat to “get out a gun and shoot” his successor, should the “shit for brains” CEO (which is to say “genius”) miss earnings again, ‘cause guess what? He meant it. And not in the up/down, in/out, I was just messing, by “I’ll fucking kill you” I meant “I’ll fucking give birth to you” way, but in the I swear to god, I will not hesitate to end your life if that’s what it takes to get some results out of this bitch. Check out the name tag button on my lapel, grandma Immelt. You’re in my bizzaro world now.
GE’s Welch Defends Immelt, Says Remark Misinterpreted [Bloomberg]
Welch says GE’s Immelt has `credibility issue’ [AP]

Although Pearson PLC is being called a possible ‘white knight’ bidder for Dow Jones & Co, many in the newsroom of the Wall Street Journal are not enthusiastic about being bought by the publisher of the Financial Times. Reporters at the Wall Street Journal, many of whom regard the Financial Times as an inferior paper with low-quality “Brit journo” standards of fact-checking and sourcing, are worried that ownership by Pearson will deteriorate journalistic standards at the paper, a source at the Journal told DealBreaker.
“I took a straw poll around the office. A lot of people are worried about what this will do to the Journal’s reporting,” the source said.
Word began to circulate late on Friday afternoon that General Electric and Financial Times publisher Pearson were “in talks” about a potential joint offer for Dow Jones & Co. Over the weekend, the story ran in the Financial Times, the Wall Street Journal and the New York Times. A decision on whether or not to make a bid is expected to come within days.
A news of a possible bid from Pearson and General Electric may have the ironic effect of making the bid from News Corp more attractive. While News Corp chairman Rupert Murdoch has promised to spend more on the Wall Street Journal, expand its international presence and has announced plans to launch a new cable news network for financial news that may give Journal reporters more outlets for their reporting, a bid from Pearson and General Electric would likely involve mostly cost-cutting synergies.
[After the jump, the not-exactly-surprising news that Journal reporters aren’t totally psyched about working for the publishers of the Financial Times.]

Read more »

  • 16 Feb 2007 at 9:30 AM
  • Citadel

Is Goldman’s Chinese Wall Leaking?

lloyd_blankfein_closeup.jpg It’s putting things a bit mildly to say, the the New York Post puts it, that “Goldman Sachs is raising eyebrows” with its disclosure that it has amassed a 7 percent stake in Ion Media Networks. Citadel and General Electric‘s NBC have partnered to target Ion for a buyout, and Goldman is advising NBC on the transaction. Information about potential buyout bids, of course, is not supposed to flow from the investment banking advising side to the proprietary trading side but the close timing of Goldman’s Ion acquisition and NBC-Citadel’s bid at least looks a bit dodgey.
So is Goldman leaking to Goldman, or is this just an inconvenient appearance of impropriety?
“It’s really a matter of how far up the decisions go,” one investment banking insider familiar with Goldman Sachs internal controls tells DealBreaker. “If the investment banking advice is coming from far enough down on the chain and the decision to pick up a big stake in Ion came from far enough down, it’s probably just a coincidence. But the higher up you go, the narrower things get, and the harder it is for information not to get passed around.”
There is, for instance, no “Chinese wall” bi-furcating Lloyd Blankfein’s brain.

Goldman’s Odd Moves
[New York Post]

State of the Union: This Message Sponsored By GE

jackdonaghy.jpgOn first glance, the most remarkable aspect of Bush’s State of the Union address last Tuesday night was that he managed to get through the whole thing with nary a stutter or bout of nervous giggling. Perhaps his unusual state of ease (emotionally and with the English language) was due to a decision on his part to accept his current situation and phone the whole thing in. Whatever you want to call it, it was probably one of the most successful public speaking appearances that Bushie-boy has made to date.
Also remarkable? That the entire speech seemed to have been written by the good people of General Electric. In fact, writer Tim Carney* notes that seven out of the nine pillars of GE’s new feel-good environmental and energy initiative bearing the impossibly corny name of “Ecomagination” found their way into the energy policies Bush called on Congress to foster (read: “subsidize”). Mr. President started by asking for congressional action promoting “even greater use of clean-coal technology,” solar, wind and nuclear power. Similarly, GE, Carney writes,

…has launched an ambitious partnership to build coal gasification power plants. Such plants are much more expensive (at least 20 percent according to industry experts) to operate than standard coal power plants, and become profitable only with subsidies or other government favors. Specifically, GE has figured out how to capture the carbon dioxide emissions from these plants, and now is lobbying on Capitol Hill for mandatory limits on CO2 emissions — thus driving demand for their costly coal plants.

GE Bush and GE also see eye to eye on the development of solar power and biofuels; but these technologies, Carney notes, are only profitable when they have the government assistance that, quite conveniently, the State of the Union asked for on Tuesday.
The Dubya was probably ready to stop there but GE is a big company, and so he had to go on to call for “battery research for plug-in and hybrid vehicles,” more “clean diesel” and biodiesel. What a happy coincidence that GE and General Motors just unveiled the Chevrolet Volt, a “next-generation hybrid vehicle that can go 40 miles each day on purely electric power,” and can also—wait for it—run on biodiesel. And GE currently has a “clean diesel” train.

The cause-and-effect relationship between GE’s investments, GE’s lobbying and Washington’s policies is probably a complex one. GE is also a famously flexible, diversified and dynamic business. If executives see that government policy is likely to move in a specific direction, GE can make sure it is there, waiting to profit from the policies when they arrive. This is probably a large
part of what drives initiatives such as Ecomagination.
But with its behemoth lobbying budget, after GE has bet on a policy—such as subsidies for windmills—GE can make sure those policies are, in fact, put in place and kept in place.
If Tuesday night was any indication, the state of GE is strong.

We knew Bush would be a “CEO President” but we didn’t think that meant “Jeff Immelt.”
*who has the distinct pleasure of being one of our fearless leader’s
three young brothers, the author of “The Big Ripoff: How Big Business
and Big Government steal your money,” and holds no stock in General
Electric nor the Bush Administration.
What’s good for General Electric []

I Just Want to Say One Word To You. Plastics

From the Wall Street Journal this morning:

General Electric Co. has asked for bids on its plastics business, valued at as much as $10 billion, in an auction that appears to reflect new concerns from the Justice Department about the lack of competition among possible private-equity buyers.
GE has told a handful of private-equity firms contacted about the possible plastics-unit sale that they face restrictions on their ability to team up with other private-equity bidders, according to people familiar with the sale effort. Although the exact nature of the restrictions isn’t known, one of the people said the contacted firms aren’t allowed to call other buyout funds about teaming up.
The restrictions may effectively limit the formation of so-called clubs, the teams of two or more private-equity firms that pool their resources to pursue a single acquisition deal.

And over on Ideoblog, Larry Ribstein points out that this kind of auction-by-auction restriction is a far better solution than some fiat handed down by the federal antitrust authorities: “Why wouldn’t this contractual approach beat one-size-fits-all banning of clubs? Or how about a default rule that targets could contract out of by setting bidding rules?”
GE Sets Private-Equity Limits [Wall Street Journal]
Private equity clubs and auction rules [Ideoblog]

GE Puts Apollo In A Sticky Situation

We like this story just because it is a good example of the direction of so much that is going on in corporate finance—old school manufacturing companies going private while spanking new tech companies reach out to the public capital markets. Now when the horse gets too old to run, he still might be made into glue. But the glue factory will probably be owned by a private equity firm.

General Electric Co., the world’s second-biggest company by market value, agreed to sell its unit that makes adhesives and sealants to Apollo Management LP for about $3.8 billion and use the proceeds to invest in faster- growing divisions.
The sale of GE’s advanced materials division, announced by the company in a statement today, continues Chief Executive Officer Jeffrey Immelt’s plan to divest slower-growing units and put resources into areas like media, security and healthcare. For New York-based Apollo, led by Leon Black, the deal adds to the private-equity firm’s more than $16 billion in acquisitions since its formation in 1990.
“Long-term, this is a good thing; it removes a commodity based-thing from GE’s portfolio,” said Peter Bates, an analyst at T. Rowe Price in Baltimore, which owns more than 120 million GE shares. “GE is continuing with the Immelt philosophy of getting into technology-focused areas to build and focus on organic growth.”

GE to Sell Materials Unit to Apollo for $3.8 Billion [Bloomberg]

Idov vs. Excel. Idov: 0; Excel: 1.

Per our earlier post, private equity anonyblogger Equity Private re-values GE based on Michael Idov’s assumptions about how Daily Candy gets to a $100 million valuation**:

General Electric trailing twelve months of revenue: $144.4 billion.
GE market cap (April 24, 2006): $358.8 billion.
Control premium for acquisition of GE (2005 average): 30%
Optimism factor applied to control premium: 20%
Resulting control premium: 36%
Theoretical acquisition cost of GE with control premium: $487.9 billion.
Cost of restructuring GE to an “internet focused firm”: 15% of enterprise value.
Restructuring time frame: 1 year.
Dollar cost of restructuring: $53.8 billion.
Total cost of GE acquisition and restructuring: $541.72 billion.
Potential sale price via “Idov Valuation Methodology” (patent pending): $1,444 trillion.
Gains from sale: $902.3 billion.
Time period: 1 year.
IRR on transaction: 66.56%
Cash on Cash: 1.67x

Our net worth went up just reading that.
**Idov asserts that “most companies” sell for 10x revenue. Incidentally, if that were the case, it would mean that New York mag was sold to Bruce Wasserstein at roughly 56%*** of market value.
***Then again, the more we think about the Lazard IPO, Wasserstein getting away with paying 56% of market for anything else would be par for the course.
Subjectively Objective [Going Private]