Just days after the company cut its dividend by 50 percent and issued lackluster 2018 guidance, credit rating agency Moody’s Investor Service cut GE’s long-term debt rating from A1 to A2 because of concerns about the direction its energy business is headed.
Coverage: New GE CEO wants to remake board, company
General Electric Co. announced that it would shrink its board from its current 18 members to 12 by April of next year, while adding three new directors with “relevant industry experience.”
David Z. Morris of Fortune had the news:
That means nine of the board’s current directors will leave. The downsizing would make GE’s board closer in size to other large companies, and aims for closely matching board makeup to new CEO John Flannery’s turnaround plan for the troubled giant.
Flannery has said he will turn things around by focusing on aviation, power and health care. That means less attention on businesses including oil and gas, transportation and lighting. That makes former ConocoPhillips CEO James J. Mulva a likely candidate to leave the board, according to the Wall Street Journal. Other possible departures include Andrea Jung and Shelly Lazarus, who are nearing planned retirement dates.
Flannery has told CNBC that former Vanguard CEO John Brennan will not leave. According to the Journal, recent board addition Ed Garden of the Trian Partners hedge fund will also keep his seat.
Choices about both departing and new directors will be made by the current board. Flannery has said the three new directors should have a “digital and technology orientation,” despite some retrenchment in GE’s once-sprawling digital ambitions.
Tae Kim of CNBC.com reported that Flannery purchased 60,000 shares of GE stock to assuage investors:
Flannery’s insider buy transaction may be a vote of confidence for the industrial company. GE shares plunged after the company’s dividend cut announcement and the unveiling of its turnaround plan during its Nov. 13 investor day.
“The GE of the future is going to be a more focused industrial company,” Flannery said during his presentation at the company’s investor day. “It will leverage a lot of game-changing capabilities.”
General Electric stock is significantly underperforming the market this year. Its shares have declined 42 percent year to date through Thursday versus the S&P 500’s 15.5 percent return.
Wayne Duggan of US News & World Report reported that Moody’s downgraded GE’s debt:
“The downgrades reflect the severe deterioration in the financial performance of GE’s Power segment that will last through at least 2019,” Moody’s senior credit officer Rene Lipsch says in the downgrade note.
Along with the dividend cut, General Electric announced this week that it will be completely restructuring its business to focus on its aviation, power and heath care segments. CEO John Flannery said the company will be looking to exit other businesses, including its majority ownership in oil services company Baker Hughes.
Unfortunately for GE stock, Lipsch says the company will not be able to sell its way out of its current hole. “Moody’s does not anticipate that GE will allocate a meaningful portion of any proceeds from planned asset disposals to debt reduction in the near term to help expedite the restoration of its credit metrics,” he said.