$16.9 Billion ($150.2B total)
Jeffrey R. Immelt, Chairman & CEO
John Dineen, President & CEO, GE Healthcare
Frank Schulkes, VP & CFO
Marcelo Mosci, President & CEO, GE Healthcare Americas
Jean-Michel Malbrancq, President & CEO-Europe, GE Healthcare
Rachel Duan, President & CEO, GE Healthcare China
Tom Gentile, President & CEO, Healthcare Systems
Reinaldo A. Garcia, President & CEO, GE Healthcare International
NO. OF EMPLOYEES: 46,000 (304,000)
GLOBAL HEADQUARTERS: Fairfield, Conn.
Jeffrey R. Immelt has always considered himself a tough-minded optimist. But sometimes, even the most steadfast of idealists find it difficult to maintain an eternally positive attitude, particularly during times of personal challenge. Immelt’s rough patch occurred at the height of the Great Recession, when a freefalling global economy obliterated the world’s financial markets, wiping out billions of dollars in corporate profits and mutilating commercial investment portfolios. The crisis forced Immelt to make some difficult decisions in order to ensure the future of General Electric (GE), the world’s third-largest conglomerate. He slashed dividends. He sold GE stock (both to the public and billionaire businessman Warren Buffett). He cut jobs. He even began selling chunks of the company, including business units he acquired, though some retailed for a loss.
It was the toughest time of Immelt’s professional life. But, as optimists often do, Immelt found a silver lining in the storm clouds that were darkening his days as chairman and CEO. In the company’s 2008 annual report, Immelt encouraged shareholders to think of the economic maelstrom as a golden opportunity, a chance to reset the company’s priorities, its focus and its long-term goals.
“I think this environment presents an opportunity of a lifetime,” Immelt wrote in the 2008 annual report. “We get a chance to reset the core of GE and focus on what we do best. We can reset expectations for our performance. And we can participate in the changes required in the broader economy. The current crisis offers the challenge of our lifetime. [In the future], successful companies won’t just ‘hunker down,’ they will seek out the new opportunities in a reset world.”
GE can hardly be accused of “hunkering down” over the last three years to wait for the economic tempest to pass. Besides investing nearly $3 billion in restructuring and closing more than 400 facilities worldwide, the company invested in and “reset” the focus for its financial services business, GE Capital. According to Immelt, the unit tightened its underwriting standards, shifted teams from origination to collection and maintained a proactive risk management focus in an effort to become a diversely funded and smaller, more focused finance subsidiary.
GE hit the reset button in other areas as well. The company increased spending in research and development by 54 percent since 2008, and simplified its portfolio, selling its security business (GE Security) to United Technologies for $1.82 billion and relinquishing control of NBC Universal to Comcast for $6.5 billion in cash. In total, the company purged about half of its portfolio since the start of the recession, a move that Immelt insists was necessary in order to strengthen businesses in industries with the best prospects for future growth: life sciences, molecular medicine, renewable energy, avionics, oil and gas, and water. Between August 2010 and February 2011, GE beefed up its product portfolio in these areas with five acquisitions worth about $8 billion. “We will be disciplined in our acquisitions,” Immelt wrote in the company’s 2010 annual report. “They will increase our competitiveness in industries we know well.”
GE certainly was disciplined in its approach to mergers and acquisitions over the last year. Executives were selective in the companies they purchased, focusing only on firms that would boost their product portfolio and give them a competitive advantage over their rivals. Thus, it was little surprise to analysts when the company announced the $3 billion purchase of gas engine manufacturer Dresser Inc., or the $1.6 billion acquisition of retail credit card assets from Citigroup Inc. The procurement of both Opal Software and the energy control systems business unit of Canadian engineering and construction firm SNC-Lavalin wasn’t completely unexpected, either—Immelt is positioning GE to grab a sizable chunk of the estimated $4 trillion global infrastructure market over the next four years.
Immelt is using a similar strategy for increasing market share in the medical industry as well. The company’s healthcare division, GE Healthcare, acquired three businesses last year to increase its market share and better serve its customers: Compagnie française de Gestion de Services de Santé—Sanesco SA, Orbotech Medical Solutions Ltd., and Clarient Inc.
Executives believe the Sanesco acquisition can help GE Healthcare strengthen its position in the healthcare consulting services sector and better respond to the needs of Frenchcustomers.
Purchasing the Boulogne-Billancourt, France-based healthcare advisory services company also allowed GE to bolster its ability to provide both practitioners and patients with new ways of organizing, measuring and managing healthcare delivery.
Orbotech was an easy choice—the company, a subsidiary of Yavne, Israel-based Orbotech Ltd.—makes cadmium zinc telluride (CZT) detectors used in GE Healthcare’s Alcyone nuclear medicine technology, a design that is based on combining CZT detectors, focused pin-hole collimation, stationary data acquisition and 3-D reconstruction to improve workflow, dose management, and overall image quality. The CZT detectors directly convert gamma rays into digital signals, eliminating the need for photomultiplier tubes, but maintaining high stopping power to deliver improved energy, spatial and temporal resolution, according to the company.
At $9 million (plus an additional $5 million if certain performance-based milestones are met), the Orbotech merger most certainly was a bargain compared with some of the company’s past acquisitions. And, it came with a bonus—the transaction settled a dispute between the two companies over a pricing and supply agreement that expired in 2007.
The price tag for Clarient Inc. was significantly higher, but executives are convinced the $580 million is money well-spent, considering the partnership is expected to foster the development of new tools for the diagnosis and characterization of cancer. The development and commercialization of these tools certainly could help GE Healthcare cash in on an anticipated bonanza in the global market for cancer-profiling products and services. Industry data indicate the worldwide market for these products is expected to grow from roughly $15 billion in 2009 to $47 billion by 2015.
“Adding Clarient’s technology to our portfolio will accelerate our expansion into cancer diagnostics and therapy tools while enhancing our current diagnostic and life sciences offerings,” GE Healthcare President and CEO John Dineen said when the Clarient merger was announced last fall. “We believe that combining the skills of the two companies will allow us to help pathologists and oncologists make more confident clinical decisions, bring improvements in the quality of patient care and lower the costs of disease management.”
GE Healthcare’s quest to secure its future wasn’t strictly limited to mergers and acquisitions. The unit entered new geographic markets in 2010 and formed a new company with Intel Corporation that will focus on wireless remote healthcare services and independent living. GE created the new company late last summer through the combined assets of GE Healthcare’s Home Health division and Intel’s Digital Health Group. The joint venture—owned equally by both companies and based in the greater Sacramento, Calif., area—is tasked with developing and marketing products, services and technologies that help people live independently both at home and in assisted living communities. Executives said the company will focus on three major segments: chronic disease management, independent living and assistive technologies.
GE Healthcare formed another new company in late April with Nycomed, a global pharmaceutical company that provides drugs for gastrointestinal, respiratory and inflammatory diseases as well as pain, osteoporosis and tissue management. The two entities formed a company based in Moscow, Russia, that will market and distribute GE’s computed tomography (CT), X-ray and magnetic resonance contrast media products in the former communist nation and the Commonwealth of Independent States (CIS). “This joint venture . . . signals GE Healthcare’s plans to grow in Russia and CIS,” said Reinaldo Garcia, who, at the time, served as GE Healthcare President and CEO for Europe, the Middle East and Africa. “It will bring GE Healthcare closer to its customers in Russia . . .”
GE did indeed grow closer to its customers in Russia last year, but its joint venture with Nycomed was only partially responsible for bridging the gap. Some of the credit belongs to GE’s joint venture with Russian Technologies (Rostekhnologii) to manufacture, assemble, sell and service high-tech medical diagnostic equipment. The joint venture, according to GE, is starting with production of CT scanners but will expand to other diagnostic equipment such as angiographs, magnetic resonance imaging (MRI), ultrasound, digital X-rays, positron emission tomography (PET), gamma cameras and medical devices. The joint venture may use an assembly facility in Moscow that produced the first Russian-assembled 16-slice CT scanner (through Nov. 30, the scanner had performed more than 2,000 exams). Components for the Russian-produced diagnostic equipment and medical devices initially will be sourced from GE, but later will shift to local suppliers.
Building on a memorandum of understanding the parties signed in June 2010, the agreement with Russian Technologies reflects GE’s deep commitment to Russia, a major growth market for the company. “We are working with our Russian partners to bring technology to Russia and develop it locally,” GE International President and CEO Ferdinando Beccalli-Falco noted. “These strategic partnerships are examples of GE’s long-term commitment to Russia and our ‘company to country’ strategy, in which we work directly with governments to satisfy their needs in rapidly developing markets.”
GE Healthcare satisfied a need in another rapidly-developing market last year with the opening of its first factory in Brazil. Located in Contagem, a city in the southeast section of the country, the plant has produced X-ray and mammography equipment as well as remanufactured diagnostic imaging equipment since mid-July 2010. This year, the factory is expanding its manufacturing capabilities to include PET, CT, MRI and monitoring systems.
More than 200 miles to the south, on an island in Guanabara Bay (near Rio de Janiero), GE will employ a team of 200 researchers and engineers to develop advanced technologies for the oil and gas, renewable energy, mining, rail and aviation industries. The company is building a $100 million Global Research Center that, when fully operational, will feature lab space, offices and conference rooms, and a GE Global Learning facility where company employees from Latin America, industry leaders, scholars and government representatives can share best practices. The 140,000-square-foot center is expected to be completed in late 2012.
Immelt’s strategy of resetting priorities and the company’s core focus seems to be paying off for GE. Though its full-year earnings have not yet returned to pre-recession levels, they are headed in the right direction after a crippling drop in 2009. Net earnings climbed 8.5 percent in 2010 to $12.2 billion, and basic earnings per share rose 5 percent to $1.06, according to GE’s 2010 annual report. Total revenue, however, fell 3.3 percent to $150.2 billion.
Immelt attributes the company’s growth last year to the spate of tough decisions he made during the global financial crisis. The investments the company made in its financial division, for example, helped GE Capital Services increase its net earnings in 2010 by 123 percent to $3.3 billion. The various resets that have occurred over the last three years—the mergers, the portfolio exits, the investments, and the product introductions—all have helped Immelt achieve his vision of transforming GE into a more streamlined and focused technology infrastructure and financial services company.
Total 2010 revenue rose in two of GE’s five operating segments—NBC Universal and Home & Business Solutions. The NBC Universal segment generated $17 billion in revenue last year, a 9.5 percent increase compared with 2009, while Home & Business Solutions earned $8.64 billion for the company, a 2.4 percent increase compared with its 2009 totals. Revenue fell in the Energy Infrastructure segment (7.7 percent to $37.5 billion), the Technology Infrastructure division (1.7 percent to $37.8 billion) and GE Capital (5.4 percent to $47 billion).
GE Healthcare was the only division in the Technology Infrastructure segment to report an upswing in both revenue and profit last year. The division posted total revenue of $16.9 billion, a 5.5 percent increase compared with its 2009 total of $16 billion. Investments and new product introductions contributed to a 13.2 percent rise in profit to $2.7 billion, according to the 2010 annual report. The solid performance of the healthcare division, however, could not prevent an overall profit loss in the Technology Infrastructure segment—company data shows that profits fell 7 percent last year to $6.3 billion.