Jeff Immelt Shifting GE's Focus To Buybacks From Takeovers
General Electric Chief Executive Jeff Immelt wants to reduce the largest U.S. conglomerate's share count to the level it was before he sold new shares to raise cash during the financial crisis.
"I want to reduce the float," Immelt told an investor conference in Florida. "Over the next few years I'd like to get the float back down to where it was pre the offering in 2008."
In October 2008, GE sold $15 billion worth of new shares, including $3 billion in preferred shares to Warren Buffett's Berkshire Hathaway and 548 million new common shares, to shore up its balance sheet.
Immelt had repeatedly said the company wants to buy back the Buffett stake at its first opportunity - which will come in October - but had not previously spoken about quite so large a buyback. GE has bought back some $2.3 billion of its stock since the board reauthorized a buyback in July.
The focus on buybacks comes as Immelt plans to take a break from dealmaking after reaching $11 billion in acquisitions since September.
"My huge focus right now is on acquisition integration," he said. "That is much more important to me right now than doing new deals."
Investors said they were pleased by the focus on buybacks. "I absolutely welcome it," said Wayne Titche, chief investment officer at AMBS Investment Council in Grand Rapids, Mich., which holds GE shares. "Historically, buybacks that are over 5% are significant and really help the stock. They have been very aggressive on making acquisitions and it would be great to see them execute on what they have done and shifting to buying back the stock and raising the dividend, which they have done a good job on."
Fairfield, Connecticut-based GE has raised its dividend three times since July, a total increase of 50%, to its current quarterly rate of 15 cents a share.
The current free float for the world's largest maker of jet engines and electric turbines is 10.6 billion shares, according to Thomson Reuters data.
GE expects its GE Capital finance arm to resume paying a dividend to the parent company next year, and if it does so that money will largely be put toward buybacks, Immelt said.
Faced with a lagging U.S. economy, companies including International Business Machines Corp and DuPont over the past month have boosted their buyback plans.
GE's lagging stock price has been the main complaint investors have had about Immelt's nearly 10-year run as CEO.
Over the past 12 months they have gained about 11.6%, lagging the 17% rise of the Dow Jones industrial average, of which GE is a component.
"We certainly welcome buybacks over acquisitions and dividend increases as long as the shares continue to trade at a price markedly lower than our intrinsic value estimate," said John Dowling, portfolio manager at Golub Group in San Mateo, Calif., which holds GE shares. "If the shares were to rally considerably, we'd see no value in buying back shares just to hit a targeted float count."