Regular readers of these posts will be familiar with the interest in ongoing efforts of GE’s CEO Larry Culp in attempting to restore General Electric to the very fine company that it once was.

During the past decade, misguided managers at GE lost sight of the company’s mission and loaded the company up with various and sundry acquisitions which have absolutely nothing to do with the core business of the company – like its health-care/biotech business, for instance.  In the past few weeks, GE’s Culp has arranged to sell its biotech business to Danaher for $21 billion.  This is a change in thinking from the original plans of spinning off the entire health-care business in an initial public offering later in the year.  The Danaher sale allows GE to gain needed cash in order to pay down debt that has been problematic.  It allows the company to “fix its balance sheet” as well as “play a little more offense” (ref WSJ) in its restructuring efforts.  Culp’s recent comments were,”Folks, don’t look at us as a desperate seller.  We are on better footing.”  He also indicated that GE’s current management now plans to focus on closing the biotech sale to Danaher, while re-evaluating plans for an IPO of the rest of the health-care division, makers of MRI machines and hospital equipment.  The biotech business that is being sold to Danaher makes supplies and equipment for developing and manufacturing biologic drugs, which are complex molecules that use living cells in the manufacturing process.  Culp has noted that the business accounted for about $3 billion of GE Healthcare’s $20 billion in revenue last year, but, even though a promising operation, wasn’t “core to GE’s business.”  Of even greater interest, is what Culp will be able to do with its sagging power business, which is core to the company.  Culp called the problems his “inheritance tax” (from previous administrations who ran GE) and indicated that the company has “some business that we need to work through where the margins and the cash generation isn’t great.”  The backlog of orders in the power division, as a result both of GE’s sales people and the companies that it acquired, weren’t built on attractive terms because previous managers chased market share.  Culp says, “There was a level of confidence that if we got the order it would be a good thing for GE and for the GE shareholder.”  But that didn’t turn out to be the case, as the company recorded $750 million in charges from the power business in the fourth quarter to make adjustments for those “realities.”  Part of the problem was with projects that accompanied GE’s takeover of the French power business, Alstom SA, where the projects attached to that business “came in at low margins,” necessitating the setting aside of cash reserves to cover shortfalls.  When the power industry took one of the largest downturns in history a few years ago, GE Power was sitting on too much unsold inventory and was slow to react to the seriousness of the situation.  Much of Culp’s time recently has been spent on the power business, trying to reverse some of the earlier missteps as well as realigning management in that division and changing the sales compensation packages so that salespeople are no longer paid on volume but on margins.  All sound promising:  ALL THE MOVING PARTS – the way to make a once successful company successful again is to engage all those parts in working together toward a known set of goals.

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