What Nelson Peltz Wants With GE

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Starting Monday morning off with a bang, Trian Fund Management announced that it had acquired a stake of 98.5 million shares in General Electric Co. (NYSE: GE) valued at approximately $2.5 billion. Trian principal Nelson Peltz is on the prowl again after failing to achieve his goals at DuPont.

According to the statement from Trian, Peltz said:

We invested in GE because it is undervalued and underappreciated by the market despite what we believe is a transformation that will allow its world-class industrial businesses to drive attractive shareowner returns.

Trian’s chief investment officer and founding partner, Ed Garden, added:

Trian believes GE has significant long-term potential and that its implied target value per share, including dividends, could be $40 to $45 by the end of 2017 based on our view that GE can deliver EPS of at least $2.20 in 2018.

Given that GE’s shares closed at $25.47 on Friday, figure even at the $40 target, less a $2 dividend, that’s a gain of about $12.50 per share. That’s a profit of roughly 50% in a little more than two years.

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In a white paper discussing its investment, Trian lauds GE’s transformation back to its roots as an industrial powerhouse:

In short, prior to GE’s “pivot,” its great businesses were overwhelmed by the bad ones and the underlying defensive growth of GE’s core businesses was obfuscated. … We believe in GE’s transformation and that management is committed and able to execute on its plan going forward. We believe the stock is undervalued at

GE CEO Jeffrey Immelt said in a statement:

We welcome Trian’s significant investment in the Company. GE maintains an open dialogue with our shareholders and enjoys productive, collaborative relationships with them. … Trian has a strong track record of working with companies to build long-term shareholder value, and has been an engaged shareholder. We appreciate their perspectives and look forward to a constructive ongoing dialogue with Trian as we execute our strategy to reshape the Company. …

[W]e have a plan to return more than $90 billion to investors through 2018 and are on track to complete our goal of closing $100 billion of GE Capital asset sales in 2015. We are transforming GE into a focused infrastructure and technology company, leading the intersection of the physical and analytical worlds.

Sure sounds like a marriage made in heaven, but the honeymoon hasn’t even started yet.

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GE’s stock was up about 3.0% Monday morning, at $26.46 in a 52-week range of $19.37 to $28.68. The consensus price target on the shares is $29.77, and the forward price-to-earnings ratio for the year ending December 2016 is 17.23.

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