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Industrials

GE Could Double Down On Conglomerate Status: A Buyout Of United Tech

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By Douglas A. McIntyre Published
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GE (NYSE: GE) has decided to maintain its position as the world’s largest conglomerate. It is old news that the company has been attacked for this. Recent evaluations of the one-decade tenure of CEO Jeff Immlt were unkind. The GE stock price since uber-CEO Jack Welch left has shredded Immelt’s image.

GE bought part of the John Wood company that services the oil industry for $2.8 billion. It may slightly help GE’s energy business, but the effects will be small.

Immelt and his board have been attacked for half measures. GE has gotten rid of most of its stock in entertainment business NBCU. Immelt practically promised he would never sell the operation, and then jumped at a reasonable offer.

GE’s composition has not changed much from the company Welch built. It has been reorganized some but not enough to matter to Wall St. GE’s board likes the conglomerate business, so it is time to show that the faith in the structure is well place

The largest conglomerate in the US after GE is United Technologies (NYSE: UTX). The company has been more successful than GE in stock market performance over the last decade.  Its Otis, Carrier, UTC Fire & Security, Pratt & Whitney, Hamilton Sundstrand, and Sikorsky units overlap with GE in the aircraft industry. Otherwise, United Technologies is not like GE. The theory behind the success of a conglomerate is that when one part of the company is doing poorly, other units can lift overall earnings. If that is true, the larger and more diverse the conglomerate the better.

United Technologies is strikingly profitable. It made $4.4 billion last year on revenue of $54.4 billion. It has a pristine balance sheet with $4.1 billion in cash and only $10 billion in long term debt as of December 31.

GE would probably have to pay close to $100 billion for United Technologies. GE’s market cap is $240 billion. A transaction would mean a complete restructuring of the GE balance sheet. Investors would wonder if the potential debt burden from a United Technologies buyout would be too much. But, GE has religiously stayed with the conglomerate model and it might as well show the market how deep that commitment really is.

Douglas A. McIntyre

Photo of Douglas A. McIntyre
About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.

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