General Electric Company (NYSE:GE) is worried that it could be the next target of activist investors, says Charlie Gasparino at Fox Business, citing sources inside the company. GE CEO Jeffrey Immelt and other senior management held a meeting last August with activist investor Nelson Peltz of Trian Partners in what the company has referred to as a ‘leadership meeting’.
“He spoke specifically about how an activist might look at GE, and what management might do to meet those demands,” the source told Gasparino.
Activist tactics have gone mainstream
Even if Immelt doesn’t have any specific fears, he may be right to worry how his company (and his management) is viewed through the eyes of activists. Once seen as disruptive and pursuing short-term gains at the expense of long-term growth, the mainstream financial world has become far more accepting of activist strategies and General Electric Company (NYSE:GE) wouldn’t be the first company to take pre-emptive steps to avoid an ugly, public fight.
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General Electric Company (NYSE:GE) isn’t protected by its size either. In the past activists may have preferred to go after small or medium sized companies, but Carl Icahn’s campaign to get Apple Inc. (NASDAQ:AAPL) to buy back shares last year shows that being a megacap doesn’t mean you won’t become a target.
Dividends are a priority for Immelt
But Immelt has also taken strides to increase shareholder value in ways that would normally please activists. He has increased dividends during most of the last decade (there was a sharp drop during the financial crisis), and continuing to return cash to General Electric Company (NYSE:GE) shareholders is clearly important to him.
“The top priority remains growing the dividend,” Immelt said last year, reports Isaac Pino at The Motley Fool, who shows GE’s dividends in the graph below. “Since 2000, we have paid out $106 billion in dividends, more than any company except [Royal Dutch Shell], and more than we paid out in the first 125 years of the Company combined. We like GE to have a high dividend yield, which is appealing to the majority of our investors.”
Immelt is also spinning off its retail financing division, which will become Synchrony Financial after its IPO later this year, in order to reduce the company’s exposure to credit risk. Selling a division that doesn’t have synergy with the rest of the company to free up cash for M&A activity or further dividend payments is a classic activist shareholder demand, and Immelt has pushed it through without anyone twisting his arm.
Considering Immelt’s track record, he may have wanted to meet with Peltz simply to a third-party assessment about how his management team was meeting shareholder needs. But if he did have some information about activist getting ready to pounce on General Electric Company (NYSE:GE) back in August, he seems to have headed it off.