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Thursday, September 14, 2006

GE's Falling Fortunes

Several news agencies report that (GE) General Electric is selling its advanced materials unit for $3.8 Billion, or some $2+ Billion for its part in the venture and after fees and taxes. Private equity firm Apollo Management is the buyer. The unit makes silicon-based products and ceramics, and it is hard to see how it fit with GE's other businesses.

Wall St. has been encouraging GE to begin to focus on fewer industries. There is a chorus almost everyday pleading for GE to spin-off NBC Universal. A number of analysts think GE should be broken into three parts: industrial products, financial, and entertainment. The basis of the argument is that the company is too comples to follow as a conglomerate.

At almost the same moment the deal was announced UBS cut GE to "neutral", a slap at the big company. According to MarketWatch, the analyst is concerned with GE's rising tax rate, the softness of earnings at the entertainment unit, and a slowdown in the aerospace market that could hurt GE's industrial unit.

All of this criticism must be hard to take for a company that many consider one of the best run in the world. But, GE continued to be dogged by the fact that investors find it hard to believe that management can focus on such a large menagerie of businesses. At $35, the stock trades well below its levels in late 2001 and 2002. While the S&P is up about 20% during that period, GE is down almost 20%.

The ghost of Jack Welch still walks the halls.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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