It was a moment of civic pride when, just a couple of weeks into 2016, General Electric said it would move its corporate headquarters to Boston.
GE wasn’t bringing a ton of jobs, but the decision was the validation we’d been seeking that the region’s intellectual infrastructure could attract a legendary company.
The irony, obviously, is that GE soon entered a tailspin, culminating with Tuesday’s news that it would break itself into three companies. Boston, meanwhile, thrived — not on the shoulders of a past-its-prime industrial giant trying to go digital, but due to the success of hundreds of life sciences and tech companies.
GE has about 3,300 employees in Massachusetts, including a couple hundred at its headquarters, a drop from 5,000 in 2016. Compare that with the many thousands of jobs added by local companies like Wayfair, Moderna, and Vertex over the past five years. Even though Amazon passed us over for its second headquarters, it has put more people to work here in recent years than GE ever would have.
The seeds of the GE breakup were planted long before it moved to Fort Point Channel.
The move is the culmination of years of restructuring around three core businesses — aviation, health care, and power generation — that began in earnest after the financial crisis of 2008-2009, when GE’s financial services division almost cratered the entire company.
In a series of deals that stretched over more than a decade, GE sold NBC Universal to Comcast; dismantled its financial services unit; unloaded its iconic appliances business to a Chinese company; divested its locomotive unit; and just this month completed the sale of its jet-leasing business.
Under former chief executive Jeff Immelt, who took over shortly before the Sept. 11 terrorist attacks, GE moved its headquarters from Connecticut to Boston. Immelt said he wanted to leverage the region’s deep pool of innovative thinking.
Unfortunately, Immelt in the latter years of his tenure made two expensive, ill-fated acquisitions: the 2015 purchase of the power business of French conglomerate Alstom and the takeover of oilfield services company Baker Hughes in 2017. The timing of both deals proved to be bad, preceding downturns in oil production and demand for natural gas.
GE was also shaken by an accounting scandal and its inability to accurately estimate the liabilities of its long-term health care insurance business.
The breakup idea was first floated three years ago by then-chief executive John Flannery, but he was forced out 10 months later. His successor, Larry Culp, the first CEO to come from outside the company, has focused on reducing costs and debt and increasing cash flow.
Now Culp has decided to pull the trigger, saying that the company’s in much better financial shape than it was when he took over. GE plans to spin off its health care business to shareholders in early 2023. A year later it will combine its renewable energy and power businesses, along with its software and data businesses, into one company and spin that off to shareholders.
What will be left: GE’s aviation business, which makes jet engines, systems, and electronics, and has a plant in Lynn.
It’s too early to say whether the value of the three businesses will ultimately exceed GE’s $122 billion market cap today. GE is hoping that’s the case.
If I had to put my money on one of them, it would be health care, which makes MRI and CAT scan machines and other equipment. The power and aviation businesses will need to navigate expensive transitions to a noncarbon future. Health care, as my colleague Jon Chesto told me, “just kind of runs itself.”
GE was once taught in business schools as a textbook case of how a conglomerate could own a diversified set of businesses with differing ebbs and flows, so that when some found themselves in a downturn, others would be doing fine and make up the difference.
That worked great — until it didn’t. GE relied on its stellar credit rating to borrow money cheaply and finance its operations, pocketing the difference between what it paid in interest and what the businesses earned. It was, in effect, a giant Wall Street bank that backed a TV network and a manufacturer of everything from light bulbs to trains to turbines.
That model broke down during the financial crisis, when fear-stricken investors balked at lending money to GE and many other companies. GE never fully bounced back.
Anyone who remembers the fate of other conglomerates — Westinghouse, Tyco, ITT, United Technologies, to name a few — wouldn’t be too shocked that GE arrived at this point. Conglomerates can be unwieldly to manage and hard for investors to understand. Wall Street prefers highly focused companies.
The late Jack Welch, pride of Peabody, gets the credit for building GE into the country’s most valuable company in the 1990s, even though his ruthless cost-cutting and finessing of quarterly profits are frequently overlooked. Immelt, a GE lifer who succeeded Welch, takes the blame for GE’s fall from grace, but we should remember he had to deal with the aftershocks of 9/11 and the Great Recession.
What will the outsider Culp’s legacy be?
Larry Edelman can be reached at larry.edelman@globe.com. Follow him on Twitter @GlobeNewsEd.
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