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 Shares of Dow industrials component GE rose 4.5 percent to $26.60 on
Monday after Peltz's Trian Fund Management disclosed its roughly
1-percent stake, and said the stock could be worth $40 to $45 per
share by the end of 2017.
Trian, which said its biggest-ever investment also makes it a top-10
GE shareholder, said it wanted GE to cut costs to expand operating
margins, explore more share buybacks including by taking on new
debt, be disciplined in its acquisitions and consider ways to
further scale back GE Capital.
But Trian said it would not seek a board seat, backing the
"transformation" already under way at GE. Peltz said Chief Executive
Jeff Immelt and GE "share much common ground with Trian."
Immelt, in a statement, welcomed Trian's investment.
"All it does is act as a further catalyst to make sure GE stays on
track with the plans they have in place,” said Charlie Smith, chief
investment officer at Fort Pitt Capital Group, which owns about 1.2
million GE shares.
Peltz, Smith said, is a "sharp operator. We’re glad to see him in
the picture."
With Monday's jump, GE's market capitalization rose to about $268
billion, trailing only a few companies, such as Apple, Microsoft,
ExxonMobil and Wells Fargo & Co.
In recent years, Peltz has targeted DuPont and PepsiCo Inc, among
others, demanding board seats and asking for separation of
fast-growing businesses from stagnating ones. He is also known to
work closely with management teams, showing more patience than some
activist peers.
Peltz, who launched Trian in 2005, is one of the largest U.S.
activist investors, with $12 billion in assets under management and
callable commitments.
Activist investors typically buy shares of an undervalued company
and push for management or structural improvements, stock buybacks
or divestitures, among other things. Last year, activists targeted
347 U.S. companies, a 58-percent increase from 2010, according to
FactSet, with this year on pace to eclipse that total.
In an 81-page report on GE entitled "Transformation Underway ... But
Nobody Cares," Trian pointed to GE's "stagnant" share price, with
total shareholder returns climbing only 10 percent in the past
decade, trailing industrial peers, with the stock hurt by the
company's dependence on its finance arm.
GE stunned Wall Street on April 10 when it said it would seek to
unload some $200 billion of GE Capital's assets, so it generates 90
percent of profits from industrial operations by 2018, from 55
percent in 2013. GE shares popped nearly 11 percent that day, but
gave up much of those gains in recent months.
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Trian began accumulating its GE stake in mid-May, Trian spokeswoman
Anne Tarbell said.
Trian chief investment officer Ed Garden told CNBC television,
"there's a ton of investor skepticism in GE," but Trian sees
"eye-to-eye with management on the plan."
"I think they’ll execute," Garden said. "If they don’t, then all
options are on the table."
While GE plans to return $90 billion to shareholders, Garden said
that could rise to $110 billion or $120 billion, "depending on how
you capitalize the industrial business going forward."
Trian's cost-cutting emphasis also comes as GE has already set
targets for improving gross margins and lowering selling and
overhead costs.
"It is not clear that Trian is suggesting a whole lot that is
different to the plan being executed by GE management," Morgan
Stanley analyst Nigel Coe said in a research note.
Peltz addressed roughly 100 GE executives in August 2013 and since
then Trian has had several discussions with GE management about its
corporate structure and improving shareholder returns, Trian said.
GE said Monday it was on track to complete $100 billion in GE
Capital asset sales this year and achieve its raised industrial
operating earnings forecast for 2015.
"Trian has a strong track record of working with companies to build
long-term shareholder value and has been an engaged shareholder,"
Immelt said in a statement.
(Reporting by Lewis Krauskopf and Michael Flaherty in New York,
Supriya Kurane, Amrutha Gayathri and Ankit Ajmera in Bengaluru;
editing by Kirti Pandey and Nick Zieminski)
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