By Jason Simpkins
General Electric Co. (GE), which is reevaluating its operations after two consecutive quarters of sub-par earnings, will advance its presence in the Middle East by partnering with Abu Dhabi’s Mubadala Development Co. to create an $8 billion commercial finance fund.
“What it allows us to do is get good geographic and asset spread of risk, but more importantly it allows us to reallocate to higher-return opportunities in commercial finance,” Jeff Immelt, chief executive of GE, told reporters on a conference call.
The two companies will also work together in the clean energy, aviation, and oil and gas sectors, investing $40 billion in commercial and infrastructure projects over the next 18 months.
GE will build a research center for clean energy and water in Abu Dhabi’s new, carbon-neutral Masdar City, as well as invest $50 million in Masdar’s Clean Tech fund. GE also wants to expand its aircraft engine service and repair business in the Middle East, the company’s fastest growing market.
The move is also part of GE's strategy to shift its financial operations away from volatile segments such as lending and consumer spending toward areas that provide higher growth. Shares of the second-largest U.S. company by market capitalization have lost 25% this year, and 30% in the past 12 months, as investors fret over the company’s heavy finance arms.
GE Capital, the company’s financial services wing, accounted for 52% of GE’s net income in the first half of the year. Immelt said the goal is to whittle GE Capital’s share of the profit to 40% by 2010.
One of the first steps the company took was to sell its Japanese mortgage-loan and credit card units to Shinsei Bank Ltd. (PINK: SKLKF) for $5.4 billion last month. That sale was followed by the announcement that GE would also spin-off its Consumer & Industrial Division, which includes they company’s trademark appliance and light bulb businesses.
GE’s media titan, NBC Universal Inc., may be next. Longtime GE analyst Nicolas P. Heymann of Sterne Agee recently told BusinessWeek that to fully restore investors' confidence, Immelt needs to shed the consumer finance units in developed markets, and should announce plans to sell NBC Universal sometime after the Olympics, but before the company's end-of-year shareholder conference.
GE's recent $3.5 billion purchase of The Weather Channel Cos. was telling, Heymann says, as the cable property's highly trafficked Web site could make NBC Universal even more attractive to potential buyers. “That's the Duncan Hines icing on your cake called [digital] media,” he said.
While Immelt has denied the rumors, a sale of NBC Universal could bring anywhere from $30 billion to $35 billion and provide GE with the capital to bolster its stock by boosting dividends or buying back shares. It would also give the company cash to restructure, make acquisitions, and increase emerging market investment.
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