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Transforming GE: Can the Giant Elephant Dance?

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Will the legacy continue?

With the advent of technology and mega mergers and acquisitions, we are living in an era where the life expectancy of corporations is declining. Very few companies, including General Electric (GE) and IBM (IBM), have celebrated their centenary. 100 years is a long time for any corporation to stay in its original form. Both GE and IBM have seen numerous transformations and tough times over the decades. IBM faced near-bankruptcy in 1993 when its traditional mainframes business came under pressure from personal computers. In 2009, GE had to knock on the Fed’s doors to bail GE Capital out of the crisis. Finally, in April 2015, GE announced ambitious plans to substantially scale down its financial services operations to focus on the industrial business.

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Will GE succeed in its plans?

GE is running ahead of schedule with its financial asset sales and expects to be much leaner by the end of 2016. With an interest rate hike around the corner, it may be just the right time to move out of the financial services business. However, the big question is how far and for how long GE can push the industrial (XLI) business for growth.

The big question

With global growth still subdued and concerns over China’s growth making rounds in the markets, GE doesn’t have an easy way ahead for its industrial businesses. How much value it can create with the Alstom acquisition and how the economic scenario pans out will provide a key to the future of a leaner GE. For now, dividends and buybacks should make investors feel good about their investment in GE.

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