Word: ge
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...boundlessly buying new businesses and the other by ripping itself apart. These are choices that companies face all the time, by the way, and they are critical to stock-market performance. One company is AT&T, which last week announced its third breakup in 17 years. The other is GE, which unveiled its umpteenth and largest acquisition--$45 billion for defense contractor Honeywell...
...GE mediocre? The corporate icon headed by Jack Welch since 1981 has thrived by being focused. Be No. 1 or No. 2 in a business. Period. Welch has amassed operations in a dozen industries ranging from financial services to aerospace to media. With Welch steering, GE has increased its market value from $13 billion to $518 billion, becoming the most valuable company in the world...
Shareholders continue to be amply rewarded. GE is up modestly this year, while the Dow is down 8%. Call it the Welch premium. GE's remarkable ability to keep its stock rising means investors are willing to pay more for it. Currently, they pay $43 for every $1 of annual GE earnings. At Honeywell, investors before the announced takeover were paying a mere $21 for $1 of earnings...
Welch simply is without peer, and that's exactly why GE's stock is headed for ho-hum. He's retiring. With the Honeywell deal, Welch agreed to stick around eight months longer, until the end of next year. After that, though, he's teeing off at Augusta...
...GE CEO will be well trained and whip smart. Be he won't be Welch. Few CEOs have had any luck running conglomerates in the past decade, and no one else running an industrial behemoth like GE will get the Welch premium. It will erode, and the stock will lose some magic. On top of that, Welch's successor faces the daunting challenge of converting Honeywell's slower-growing businesses into the kind that expand 20% a year, as GE does...