Thursday, July 24, 2008
Jeff Immelt's Deal In PalookaVille
Much has been made this week of GE's arrangement with Abu Dhabi's ruling Al Nahyan family.
Ostensibly, GE's financial unit will, according to 'breakingviews.com' in the Wall Street Journal,
"invest surplus cash generated by its enormous oil resources. Over three years, each side will invest $4 billion. That total of $8 billion will be leveraged up to five times with debt, and the pot of as much as $40 billion will be invested in the Middle East and beyond."
Honestly, I don't see all that much that is special here. So GE found someone to co-invest with in the Mideast. May I remind people that GE hasn't managed to move the total return needle under Immelt in six years?
What is suddenly going to change now? Sand, surf and sun?
But the really telling aspects of the deal come later in the article,
"It is like private equity, with GE-friendly twists. The company gets orders for products ranging from gas turbines to clean-energy technology for Abu Dhabi's "carbon-neutral, zero-waste" Masdar City. GE will even establish a local version of its management-training program. Unlike an investor in a buyout fund, GE has an open-ended investment horizon.
Abu Dhabi gets something for its dirhams, too. GE's products and services may be useful, but they should come with a bonus for a developing economy: the transfer of technology and know-how. Compared to some of the emirate's previous ventures -- a Ferrari theme park and an affiliate museum of the French Louvre, for instance -- bringing GE in looks like a step up."
As the nearby Yahoo-sourced price chart for GE and the S&P500 Index displays for the past five years, the industrial conglomerate has failed to give investors a total return even remotely similar to that of the market. It has barely remained flat over the five years. Over the entire course of Immelt's nearly six-year reign, the result is essentially the same, at best.
What this means is that many intrinsic "technology, know-how," brand and other intangible values on GE's balance sheet have become worthless in terms of market value.
Immelt's inept leadership have nullified decades of prior value creation.
As such, Jeff is basically hauling out the family silver, setting dinner for the Al Nahyans with it, and letting them take it with them after the meal.
Immelt is training Abu Dhabians in management and transferring GE's vast technological prowess, undervalued by global investors, to the desert Muslims.
As such, he's both giving away valuable American know-how to get some cheap financing, as well as exporting knowledge-worker jobs to the Gulf.
Where's the Congressional outrage over this deal?
Having struck out- miserably- on the global stage while managing GE, Jeff headed to Palookaville to get a deal with some investors whose last shrewd deal was "a Ferrari theme park and an affiliate museum of the French Louvre."
What's next, Jeff? An investment deal with South Africa? Trade jet engine technology for rights to invest diamond revenues?
Equally sadly, CNBC, GE's wholly owned toady-business-news network, and other business media, fail to notice and report on the real implication of this deal. That GE can't get respect or earn appropriate total returns for its shareholders in major equity markets.
So the company has turned to hooking up with novice investors in far-flung corners of the globe, giving away valuable technology and future white-collar jobs to attract capital.
Is this the portrait of a well-run American large-cap company?