GE shares soar after CEO John Flannery ousted; Larry Culp takes helm
GE shares soar after CEO John Flannery ousted; Larry Culp takes helm
John Flannery’s departure calls into question plans to reorganise GE one of America’s best-known corporations
05 October, 2018, 05:42
Culp, known for turning around Danaher, was added to GE's board in February. GE bosses have typically enjoyed long-term tenures spanning more than a decade.
The stock jump is a sign from Wall Street "that Flannery's leadership was not providing enough value - and that the market expects Culp to be better suited for the top position", said Tim Hubbard, assistant professor of management in the University of Notre Dame's Mendoza College of Business.
The shares climbed 8.2 percent to $12.22 in NY premarket trading Monday.
GE Power "will fall short of previously indicated guidance for free cash flow and EPS for 2018", the company said. GE will need to take a goodwill impairment charge of almost all the $23 billion in its goodwill balance, according to the company.
"It is a privilege to be asked to lead this iconic company", Culp said in a statement Monday.
The ouster of John Flannery gave GE its third chief executive in about 14 months.
"GE remains a fundamentally strong company with great businesses and tremendous talent", said Culp. The stock had been down more than 30% this year as of market close Friday. The growth of wind and solar plants has cut into global demand for thermal plants; as one of the world's largest manufacturers and servicers of turbines for electrical generation, GE has been hard hit by that trend. GE had fallen 35 percent this year through September 28, following a 45 per cent decline in 2017. It was replaced by the parent company of the Walgreens pharmacy chain. Flannery took on the job in August 2017. Immelt took over from Welch two days before the terrorist attacks in NY and Washington on September 11, 2001.
The board's move comes in a little more than a year after it appointed Flannery as GE's chief executive. Currently, the goodwill balance of GE Power is about $23 million. The company also shrank its board and pushed out a raft of directors who served under Immelt. Flannery said he expected the power business to "remain weak through 2020." The company has been forced to sell off divisions and lay off employees, a process that accelerated under Flannery. But investors seemed unimpressed, and the stock kept falling even as US markets notched records.
GE, an original member of the Dow since 1896, was dropped from the index last summer. Flannery announced his resignation today.
"With Larry what GE shareholders get is an outsider who will likely strip corporate back to necessary functions and tear down all the fiefdoms that prior management (Immelt) had built up", he wrote. In the release, the company said that the change in management will be effective immediately. GE cut its payout in half in late 2017. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Capital allocation can include decisions like stock buybacks, acquisitions, and research and development spending.
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