The business principle of spreading risk makes sense unless it is only risk which is being spread with no hope for reward. GE (GE) has not made much of a case for being a conglomerate. Over the last year, its stock is down from nearly $39 to about $16. That puts it off about 58% compared to 33% for the DJIA.

Much of the concern about GE stems from its exposure to credit problems due to the assets in its financial arm. But, that is only a piece of the problems at the firm. Its industrial, media, and entertainment assets have posted only modest returns in the two years. GE’s huge infrastructure unit has carried the earnings load. That may be why so many investors and analysts want the company broken up.

If GE’s board and management want to hold the firm as the entity that exists today, it would be appropriate to manage the current assets well and perhaps weed out the units which are unlikely to ever turn in remarkable performances.

Instead, GE is talking about expanding and some of the acquisitions which might be involved would be in the industries where the firm already has weaknesses. According to the FT, GE CEO Jeffrey Immelt suggested that the poor economy might benefit his company. “There are going to be some opportunities in media consolidation, in infrastructure, oil and gas, aviation,” Mr Immelt said. “And my hope is that we can play in some of those as time goes on.”

In Never-Never Land, escapism is part of the landscape. It may not work as well in managing America’s largest public companies.

In the first three quarters of this year, the segment profits fell in two of GE’s five divisions. In another, the figure was basically flat. GE may be a great company and it may have tremendous assets, but it has not shown that it is a great steward of those assets. It might be wise to work on that issue before moving into the world of M&A, even it some of the companies that GE covets are available cheap during the recession.

Douglas A. McIntyre

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