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How GE Will Fund The Largest Stock Buyback In History
Back in April 2013, Apple shocked the world when in a dramatic U-turn to Steve Jobs beliefs, it announced what was "the largest single share repurchase authorization in history" when it boosted its share repurchase authorization to $60 billion from $10 billion. Today, GE did its best to match this number, when it reported that as part of a massive business restructuring, it announced a "new Board authorization of up to $50B buyback."
The main reason for this near record buyback announcement is two-fold: GE's belief that there is no incremental value left in GE Capital, the bulk of whose assets it is selling, a division which nearly bankrupted the conglomerate back in 2008 when as a result of its massive leverage, anywhere between 9x and 10x...
... the division that was more profitable than the Industrial section precisely due to this massive leverage...
...forced GE to participate in any number of the freshly created bailout programs and which led to GE being branded a Systemically Important Financial Institution, or SIFI, a stigma which management was less than happy with. As a result of the GECC sale, Jeff Immelt was delighted to report that it "will eliminate the only Industrial, wholesale-funded, non-bank SIFI." The proud buyers of the bulk of GE Capital's assets: Blackstone and Wells Fargo, who are part of a $22.5 billion sale agreement.
So just how will GE fund the massive buyback and generate "up to $90 billion in potential return to shareholders"? Here is the breakdown from the just released presentation:
- $26.5B of Real Estate transactions announced
- Plan to sell ~$200B of ENI ex. liquidity (~$260B of assets) … day 1 charge of ~$16B, including $2.4B disc. ops. charge for Real Estate
Why is the company doing this transaction now? Here are its thoughts:
- Business model for large, wholesale-funded Finco has changed dramatically; more difficult to generate acceptable returns
- Synchrony and other dispositions are proof points that GE Capital platforms are more valuable elsewhere
- Strong seller’s market for financial assets, with good GE track record of execution and value realization
- More clarity on SIFI de-designation process
- Efficient approach for exiting non-vertical assets that works for GE and GE Capital debtholders and GE shareholders, including guaranteeing GE Capital debt-a)
Visually, this is what GE is selling and what it is keeping.
A drilldown into the assets to be sold:
And while GE winddowns the bulk of GE Capital, this is what it will do with the proceeds:
The funniest part of the presentation: the financial bridge, which shows that all the losses due to the company's decline (25 cents in the next 3 years), will be matched by the gains from the collapse in the amount of outstanding GE stock (25 cent buyback impact boost).
And what goes without saying is that the main driver for the mega transaction is that without the SIFI overhang of "Capital", Industrial now becomes a very atttractive acquisition target for an acquisitive international acquirer. Because in the New Normal Siemens issuing €200 billion in negative interest debt to acquire GE sounds like just the kind of centrally-planned insanity that the central banks have unleashed on the world.
Plus it's clear that Immelt is tired of managing this behemoth and wants to rest.
Below is the full GE slidedeck
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Could they also do this with Solyndra?
Weren't these the guys that built the Fukushima reactors? Maybe they meant high beta-particle return industrial business?
GE. We bring new frauds to light.
Sometimes, I really enjoy economics/markets/finance/investing news and sarcasm with my coffee in the morning. This is a thing of beauty!
Hah!
Regards,
Cooter
Sounds more like corporate intermingling to make sure everyone is on board for when the crisis starts hitting full acceleration. Makes it so that everyone is bought into keeping it afloat or losing their source of income.
This could set a trend for the future growth potential of the non-corporates.
Paperwork is our most important product.
This is the QE that has propped the markets up, to the tune of 100 billion a month since QE ended.
"Free" money?
I repeat, the public equity market is dead. It does not provide effective oversight mechanism for equity owners. It does not align interests between owners and agents. In fact, it guarantees the company will be run for the benefit of management, to the detriment of owners, employees, clients and vendors. And then we act surprised when it is.
But will they *complete* the buyback? Statistically, I think most companies announce but never complete the entire plan. I think I read that on here or Barron's once.
""Free" money?
I repeat, the public equity market is dead. It does not provide effective oversight mechanism for equity owners. It does not align interests between owners and agents. In fact, it guarantees the company will be run for the benefit of management, to the detriment of owners, employees, clients, ***TAXPAYERS*** and vendors. And then we act surprised when it is. "
Excuse me; but, as a Taxpayer forced by finacial terrorists and crooked poiiticians into a fraudulent conversion without tangible interest, bond, equity, note, IOU, coupon for discounted product purchase, or even a goddamned 'Thank you for saving our asses and preserving our largly ill gotten mega-wealth after we helped nuke the main st. economy with our thinly veiled vendor financing and securitization frauds, tax cheating, environmental regulation and labor arbitrage games.' I resent that you seem to have forgotten exactly who took it up the ass for these bastards...
ThroxxOfVron --You sound a little sore. That's a better quote than my old favorite, my Economics professor from 1982 who said, "My father would have liked to have raped and pillaged the world but as a barber, there wasn't much he could do about it."
My favorite Economics Prof. was a Czech defector from Communism, and I can remember him saying, "The Communists said Americans were starving, and they were right", and as he pulled in his belt, finished by saying, "Almost every American on a diet".
In an era when CAPEX is no longer in vogue (due to the siren's song of buybacks), GE one-ups everyone and UN-CAPEXes in order to fund buybacks.
UN-CAPEX: the new-new thing.
LOL! Great post. in light of abandoning GAAP and ZIRP, I'd laugh more if the whole bullshit situation wasn't so sad...
One of the largest companies in the world is unable to expand and is buying back instead of doing capex spending.
Growth? Where is the growth?
Actually, their R&D department is just now releasing their greatest innovation of all time; the negative-growth hyper drive.
However, I think the marketing department really screwed up the campaign though, as I read all the stuff above with great interest buy didn't really feel like buying one in the end.
Regards,
Cooter
It's "imaginary money", left under the pillowcase by the imaginfairy.
GE > Mark 1 Reactors > Fukushima > 23 Mark 1 Reactors in the U.S. currently
We Bring Good Things to Life!!!! Of course you do GE....
GE is going to discover there are no buyers in the world markets they helped to break and the competition is fierce since every sheep company out there has the exact same idea of privatizing since the time to do that was 7 years ago when there was still a reasonable expectation the timing would work. Right now, nope. Protip to GE, think about Public Domain Open Sourcing everything in the vault.
-cackling intensifies- The irony is delicious.
This transaction clearly illustrates the fact that there is no growth going on in the world and the only thing companies can do with is return capital to share holders, manipulate numbers through finalization, and throw R&D under the bus. WWIII better heat up soon if these companies are going to survive.
'Plus it's clear that Immelt is tired of managing this behemoth and wants to rest.'
A round of GE executive retirements to start soon. They're just packing their golden parachutes.
Holy I a Cow a
What I don't understand is how anything will be made in the future. DO people really think the world can exist when everything is just a digital figment of the imagination and all money is just printed out of thin air?
OT OT
If you let a homeowner insurance policy expire (house paid) you should technically have no insurance....right? So why is my insurance co. billing me for the "grace period ". WTF!!!!! Not only billed but sent to collection almost immediately (which is how I even became aware of this scam). Anyone else aware of this practice or am I missing something?
If you placed the policy with another company, you simply inform the present insurance company of that policy and its inception date.
It doesn't make sense the insurance company would send the bill for the current policy period to a collection agency. If you don't pay your bill and don't formally cancel the insurance, you'll normally get a Notice of Termination (usually by certified mail).
I suggest you contact the insurance company you no longer wish to continue coverage with and formally annouce your intent not to renew the policy. Unless you're willing to retain the risk, I also suggest you obtain insurance on the dwelling if it is of significant value.
Check your policy. It may be there.
Not surprised. Insurance co's are becoming desperate. I think Obamacare is causing a lot of it. I've had homeowner's ins. for 30 years. Paid off the house 7 years ago. The premiums absolutely skyrocketed last year. Up over 2.5 X's in 3 years, w/o a claim since Hugo (1989). It was so high that they were required, by state law, to get my written permission! Of course, I didn't. The high deductible already made the policy a joke.
So the shadow banking market is dead.
GE: I bought a new GE washer some years back at BigBoxDepot. On sale, good price, free delivery, but the washer was crap. Did not do a good job washing clothes, the timer was replaced twice under warranty, and after two and a half years, the washer failed. If it had been a better washer I might have tried to repair it. Went to Crgslist dot com and bought a washer/dryer set of used Kenmores for half the price of the new GE washer and they work great.
The salvage guy was driving by one day and spotted my old washer and dryer on the driveway. I said he could have the old dryer but would he give me $5 for the washer since it was cosmetically perfect? He asked the brand, I said GE, and he said no, maybe for Kenmore or Whirlpool, but not GE. I said take it away anyway.
You can't hear the ringing of the bell ... it's so loud it blew out your eardrums!
I was an equity analyst following GE (among many other firms) before retiring four years ago. Immelt and the GE Board are saying they have no confidence the central banks can run financial assets' prices any higher, and they are bailing despite having to take a $23 billion hit on the garbage in their portfolio (just think what the real values were before multiple rounds of Federal Reserve, Bank of Japan, Bank of England, and ECB QE ... can anyone say insolvency!).
Assuming Immelt is still connected, this is as clear a signal as you will ever get from one of the major global players that the QE game is in the last innings!
He became a member during the financial crisis when GE turned into a bank to get TARP funds as they were close to going belly up too.
And, yes, he is still 'connected' even though he is no longer a managing member of the Federal Reserve Bank of New York.
My head hurts.
The repurchase of outstanding shares (repurchase) by a company in order to reduce the number of shares on the market. Companies will buy back shares either to increase the value of shares still available (reducing supply), or to eliminate any threats by shareholders who may be looking for a controlling stake
So which is it in GE's case?
BFD that they're buying-back shares... THEY NEED TO PERMANENTLY RETIRE THE SHARES AFTER THEY BUY THEM BACK! They'll probaby issue some low-rate junkbonds to finance it regardless of what their lil dog n pony show claimed... With their track record, they'll probably buy the shares back and then sit on them or use them as RSUs for their employees and when they exhaust all other forms of money printing they'll sell them again to raise cash...
How much of a competitive disadvantage will GE "Industrial" lose if the captive finance arm no longer is captive to GE products?
It seems to me that, over the years, a lot of GE's sales, particularly in the aviation industry, were predicated not on superior product lines (not vastly inferior, but not exactly superior either), but merely because GECAS, along with ExIm and other partners, offered particularly competitive financing terms. If GE loses this advantage, can the "Industrial" division really grow as much or as fast?
Just a bit of food for thought, I don't know the answer to this and I'm not sure the market does either.
It may be a good idea, I dunno, but it still smells like the continued dissolution of American business.
Actually GE would probably be better split into a dozen or two dozen independent entities, whatever synergies come from the combination are overloaded by the bloated management it takes to hold them together.
"... continued dissolution of American business."
"...bloated management"
BINGO
GE has financialized the greenenergy conscription of America, even if 100% of their financed projects fail they get paid plus interest with swaps
With equity in bubble territory, bonds negative rates, credit risk set to explode due to lack of cash flows, consumers dead and banks are dinosaurs it looks a good deal to me.
Good for GE bad for for finance/ makets in general, this is shouting fire in a crowded theatre for those that listen.