General Electric ditches boss John Flannery and takes $23bn hit

GE Market Cap

Flannery was replaced on Monday by Larry Culp, a respected executive who becomes the first outsider to lead GE in the company's 126-year history.

Culp, who had been named to GE's board of directors in April, takes over a shrinking corporate giant, the company announced Monday.

GE, however, has not seen such gains, particularly when it comes to its power business which was hit by problems with its latest generation of gas turbines and posted a $10 billion loss a year ago.

With most of GE's divisions performing on track with expectations, setbacks in GE Power will drag down the overall company's free cash flow and earnings per share this year, GE said in a statement.

GE said there would be a substantial write-down of the $23 billion of goodwill associated with the power unit, whose prime business is producing large natural-gas turbines for electric utilities around the world. Currently, the goodwill balance of GE Power is about $23 million.

"GE remains a fundamentally strong company with great businesses and tremendous talent", said Culp in a statement, adding that he and leadership "remain committed to strengthening the balance sheet, including deleveraging". We will be working very hard in the coming weeks to drive superior execution, and we will move with urgency.

Flannery's exit was met with surprise and celebration on Wall Street.

Culp, 55, is credited with leading a turnaround at Danaher, which makes everything from dental tools to consumer packaging.

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GE's share price suffered under Flannery, falling more than 50 percent since he took over last August.

In other words, exactly the opposite of the situation at GE.

The announced leadership changes resulted in a almost 14% stock price increase in premarket trading.

Flannery announced a plan to transform GE in November 2017 shortly after replacing Jeff Immelt but the company's struggles continued under his watch, with the stock price diving more than 50%.

In June GE said it would spin off its health-care business and sell its interest in Baker Hughes, a massive oil services company. Investors were reportedly frustrated by how long it was all taking in the face of mounting debt and profit shrinkage.

CFRA Research analyst Jim Corridore said it was probably positive that GE had tapped an outsider to lead the company instead of another company veteran as Flannery had been.

GE has turned to cost-cutting measures in recent quarters to offset sagging revenues, selling off a light-bulb segment once spearheaded by Thomas Edison and its distributed power business. That comes after the power business posted a $10 billion loss past year. On Friday, the company's shares were down to $11.29, far from its 52-week high of $24.89.

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