General Electric Co. (NYSE: GE) is a company that is so large that it is likely never going to be a takeover candidate. There is a flip side or antithesis of M&A though, and that is break-up and spin-off strategies — a core effort of many activist investors. It has been pondered by many investors for years that GE should “deconglomerate” to unlock shareholder value. And now comes word via an SEC filing that GE may have just, at least partially, opened the door a tad wider to activist investors or investors who want to take on a more strategic role in one of America’s largest companies.
Before you think an activist investor will be able to break up GE, that is not exactly the point here. In fact, do not hold your breath for that to occur any time soon. Still, GE released an 8-K filing with the U.S. Securities and Exchange Commission showing that it has amended and restated its bylaws to implement a proxy access bylaw.
It is these proxy filings that activist investors use, along with the public media and other efforts, to wrangle influence, or at least some control, over companies and their boards of directors. The filing does not at all appear to make GE the next open target of activist investors. Having this change does not imply at all that GE will suddenly have the likes of Carl Icahn or Bill Ackman being able to make strict and public demands for GE to take one action or another. Still, this could open GE to a more pro-activist mentality inside the company.
24/7 Wall St. has asked for a comment from the GE spokespeople. A GE spokesperson responded to our inquiry by saying:
GE has always emphasized shareowner accountability, and proxy access is another tool to provide that accountability. In talking with many of our shareowners and others, and as part of our annual governance review, we decided that implementing proxy access was appropriate at this time.
The first part of the SEC filing is listed below, and a link has been added later to the full document.
Effective February 6, 2015, the Board of Directors of General Electric Company (the “Company”) amended and restated the Company’s By-Laws (the “Amended and Restated By-Laws”) to implement a proxy access by-law. Article VII, Section F of the Amended and Restated By-Laws permits a shareowner, or a group of up to 20 shareowners, owning 3% or more of the Company’s outstanding common stock continuously for at least three years to nominate and include in the Company’s proxy materials directors constituting up to 20% of the board, provided that the shareowner(s) and the nominee(s) satisfy the requirements specified in Article VII, Section F.
The Amended and Restated By-Laws also make clarifications, updates and other, non-substantive changes to the advance notice provisions in Article VII, Section D.
This description of the amendments to the By-Laws is qualified in its entirety by reference to the text of the Amended and Restated By-Laws filed as Exhibit 3(ii) to this Report.
GE’s mentioned bylaws are here in full for review. Keep in mind that with a market cap of nearly $250 billion, a 3% stake today would be worth some $7.5 billion. Only Vanguard and State Street each now hold 3% of the stock, and here is a list of the top 10 GE holders (as of September 30, 2014, for most cases) in terms of percentage of shares outstanding to see which groups of holders might be included in a 3% stake hurdle that was mentioned above:
- Vanguard 5.20%
- State Street 3.98%
- BlackRock (Inst.) 2.61%
- Capital World 1.96%
- Northern Trust 1.45%
- T. Rowe Price 1.40%
- BNY Mellon 1.32%
- Fidelity 1.24%
- BlackRock (Fund Advisors) 1.20%
- Bank of America 0.82%
Along the lines of taking an activism-friendly stance, GE could already argue that it has been doing this. GE has begun the endgame for Synchrony Financial (NYSE: SYF), and it has reached a deal to sell the appliances unit and to make a large acquisition in Europe.
The one thing that GE may more recently be faulted for was its move into energy via oil and gas, as well as alternative energy. This was praised at the time it was done, so criticizing it after the fact would simply be one more instance when outsiders would tell Jeff Immelt and his team that the crystal ball was not working when the decision was made to increase this effort.
Please note that we did see a Wall Street Journal article from March of 2014, indicating that GE had invited activist investor Nelson Peltz to address a gathering of GE’s senior management in the summer of 2013. That was said to be about broader markets rather than about GE itself. Still, does this stir up any thoughts?
GE shares were up $0.07 at $24.79 right before the closing bell on Wednesday. The conglomerate has a 52-week range of $23.41 to $27.53, and it also has a consensus analyst price target of $28.69.