General Electric Co. (NYSE: GE) held its 2010 annual shareholder meeting on Wednesday in Houston.  24/7 Wall St. was given a private interview with Jeff Immelt, Chairman and CEO of GE,  before the start of the annual meeting.  While there was no formal action announced on the dividend, not yet at any rate, I asked about several topics not normally addressed at the annual meeting including possible spin-offs, the best opportunities for the company, the new benchmark for return on capital and what the biggest themes will be ahead.

While Mr. Immelt did not commit on the timing (in 2011) nor on the amount to be paid out, the dividend hike is coming.  I specifically asked, “No sneaky news about the dividend?… You have said on record 2011, I guess you guys mean it.”

• Immelt laughed and responded, “We’ve got a lot of cash.  We think growing the dividend is good for our investors.  We plan to do that and I’ve got nothing to add other than what was previously said… other than, the dividend is going up.”

On the path of spin-offs…

As far as NBC-U, is that still on target for late this year or is it early next year?

• Immelt: “I really don’t have an update .. we have basically said we thought we could get it done by late this year.  I really wouldn’t change that… but the regulatory process works on its own clock.  We still think that timetable looks pretty good.”

As far as the appliances unit, there was a time that was going to be spun off.  And now?

• Immelt: “I think, basically, post the NBC move, when I think about the portfolio today I look at it as being very stable.  On the industrial side, we are running the appliance and lighting business and the prospects for those are quite attractive right now.  You’ve already heard us talk about what we are doing in financial services, we are going to be smaller there but we have outlined a pretty good pathway on those.  I think from an investors standpoint, I would look at the portfolio as being pretty stable right now.”

What do you see as being the greatest opportunity inside the GE portfolio today?

• Immelt: “We are going to get a real snap-back in financial services earnings and we turned the corner in the first quarter.  We’ve got a lot of tailwind in that business today so I kind of take that to the side number one. Number two,  we are very well positioned in the emerging markets that are growing with energy and health care.  Rather than pick a business, we are in the right places around the world and with regions that don’t just buy energy.  They buy aviation and health care, like China.  The third thing I would say there is that once we close the NBC-U deal we’ll have in excess of $25 billion in cash that gives us tremendous flexibility around buybacks, dividends, strategic acquisitions… Those three things from an investors standpoint are pretty good catalysts when you think about the stock.”

After having met with Keith Sherin (CFO) in 2007, I noted that there was a figure that was very shocking to me and that figure was a goal 20% return on capital for the overall portfolio inside in GE. This seemed very aggressive, and in the new normal is that new benchmark 10%, 12%, or what?

• Immelt: “In some ways it is still in a bit of flux.  For our industrial portfolio we have a return on capital of about 16% right now, kind of in a recession if you will.  That is a pretty good return, and I think it will stay in that range of 15 to 20 percent as we continue to invest in the company.  From a financial services standpoint, that has gotten crushed in the recent years.  There is no reason to believe that the (holding more capital and that there is less leverage) there are a lot of things that have  changed.  My sense is that, regulation is not done yet, but my sense is that we’ll probably earn a mid-teens return on financial services. Our weighted average cost of capital is in the high single-digits and we are able to reinvest both on the financial and industrial business and create value for investors.”

GE has always been known as an acquirer.  Do you envision any great growth opportunities that are outside of the company right now?

• Immelt: “Our first priority is going to be to continue to invest in the franchises we have today, both on an organic and inorganic basis.  Energy, health care, things like that.  One thing I would say is that we have always talked about ‘adjacencies.’  If you think about the last decade, we got into renewable energy, we got into oil and gas, and we got into avionics.  These were businesses that we were not in before but they are near neighbors off the business we had.  That is what you can expect to see, you can expect to see us get into home health, get into batteries.  We always have about five or ten ‘adjacencies’ we are working on at any given time.  From where I sit right now, I don’t see a brand new GE business.  We’ve got plenty of growth opportunities where we are.”

As far batteries, this is something that has come up before in prior conversations with Keith Sherin.  Is there a direction you are going in the batteries?

• Immelt: “We have two big investments.  One we have an equity stake in A123 Batteries (NASDAQ: AONE) for lithium and about the transportation industry.  And we have an investment in sodium batteries which is organic, and that is more targeted toward energy storage, uninterrupted power supply, temporary power, and things like that.  Those are our two big investments, and I think it is a nascent industry.  Nobody knows for sure what the endgame is technically, but we want to have three or four bets because I think in general we believe batteries are going to be a good business.”

GE has constantly been about themes.  At a previous engagement this week with the communications team, this was all about individual themes.  GE seems to be very much a “parts of the sum” theme rather than a “sum of the parts” theme.

• Immelt: “I think the two big pillars of the brand are clean energy and affordable health care that are absolutely important for the strength of the brand.  Inside the company, I always think it is about people, developing leaders.  Process, capabilities, risk management, and about growth.  The big core themes under the hood of the car are about people, process, and growth.  The brand is built on two pillars, and that is affordable heath care and clean energy… big societal problems.”

Thank you very much for your time.

JON C. OGG

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