- Financial-asset divestitures this year reach $97 billion
- Share buybacks seen as easier with end of SIFI status near
Nelson Peltz’s Trian Fund Management LP acquired a $2.5 billion stake in General Electric Co., sending the shares up the most in almost six months, as the activist investor takes advantage of the company’s tilt back to manufacturing.
GE has announced $97 billion in financial-asset divestitures this year, including a $2.5 billion deal Monday to sell its corporate-aircraft financing portfolio to Global Jet Capital. Shrinking the GE Capital lending arm will let GE shed its designation as a systemically important financial institution, boosting the prospect of share buybacks, said Nick Heymann, a William Blair & Co. analyst.
“Nelson Peltz, like others, clearly believes the financial-services business is a bit of a black box,” Heymann said in a telephone interview. “They viewed GE’s exit from that business as a positive.”
Trian’s investment is the firm’s largest and makes it GE’s ninth-biggest shareholder, according to data compiled by Bloomberg. The New York-based fund said it met over the past few months with leaders of GE’s business units in a series of site visits before completing the investment. GE shares may reach $40 to $45 by the end of 2017, Trian said Monday.
“We invested in GE because it is undervalued and under-appreciated by the market despite what we believe is a transformation that will allow its world-class industrial businesses to drive attractive shareowner returns,” Peltz said in the statement.
GE rose 4 percent to $26.49 at 10:01 a.m. in New York after climbing as much as 4.3 percent for the biggest intraday rally since April 10. The stock’s 0.8 percent advance this year through Oct. 2 outpaced the 5.2 percent drop for the Standard & Poor’s 500 Index.
Chief Executive Officer Jeff Immelt decided to refocus GE on its industrial roots and shrink GE Capital after the 2008 credit crisis imperiled the parent company and forced it to cut its dividend. GE plans to sell about $200 billion of GE Capital lending assets while paring the division to emphasize support for its own industrial goods, such as the financing commercial aircraft to sell more jet engines.
Some of the funds raised from those divestitures will go toward the 8.5 billion-euro ($9.6 billion) acquisition of Alstom SA’s energy business, giving GE a lock on many of the French competitor’s lucrative gas turbine servicing contracts. The deal was approved by European and U.S. regulators last month.
GE may have as much as $23 billion to $30 billion of debt capacity to repurchase shares, according to a note on Monday by Bloomberg Intelligence analysts Joel Levington and Karen Ubelhart. Immelt told investors and analysts in May that GE could borrow as much as $20 billion.
GE Capital has become a drag on GE, posting a return on equity of 8.6 percent that is below the company’s cost of capital, Bloomberg Intelligence analyst Jawahar Hingorani said in a separate note. GE is now trading above the valuation of its electrical-equipment peers, spurred by moves to shrink the lending arm, Hingorani wrote.