WHEN: TODAY, FRIDAY, April 10, 2015
WHERE: CNBC'S BUSINESS DAY PROGRAMMING
Following is the full unofficial transcript of a CNBC interview with GE Chairman & CEO Jeffrey Immelt as the company unveils plans to sell most GE Capital assets. Excerpts of the interview will run throughout CNBC's Business Day programming today. Clips of the interview will be available on CNBC.com.
All references must be sourced to CNBC.
DAVID FABER: Jeff, GE Capital, I mean, like the first question is a simple one. Why and why now?
JEFF IMMELT: Yeah, you know, so David I would say the business model of financial services has certainly changed. You know, we've got a fantastic industrial-- portfolio. But we were a large, wholesale funded-- finance company. You know, the wholesale funding model is tougher. We were-- we felt like we were disadvantaged versus banks. And at the end of the day, you know, the way investors-- view financial services versus industrial assets is just starkly different. And we kind of felt from an investor standpoint that this was the right time to make the move. We-- and we've been working this way since the financial crisis. And you know, why now? I think two things have happened-- just recently, you know. One is-- you really have a perfect market to be selling financial service assets, so you've got slow growth, low interest rates, lots of liquidity, people searching for yield. And I think recently the FSOC, you know, the Financial Oversight-- Board, has really said that there's an off ramp for companies that-- were systemically significant to kind of get off as they shrunk. And you know, we think this is good for the system. We think it's good for the regulatory world, it's good for investors. And that's been more or less recent. Now's the time to do it.
DAVID FABER: Now is the time. I mean, 'cause it's not as though this is any stranger to you, or--
JEFF IMMELT: No, no.
DAVID FABER: a conversation that you haven't had many times over. And I know-- I mean, for years you've at least considered it. But it--
JEFF IMMELT: See that's the thing--
DAVID FABER: --so when you crystallize on, again, it's sort of the idea, this is the right time. It comes to-- because you think you can get the highest price for the assets?
JEFF IMMELT: You know, so David-- so we started at, like, 600 in the crisis. We've kind of cut that in half. We always said to investors, since the financial crisis, "Look we're going to-- we're going to do things that are in our control. And we're going to do them at good values. There's no reason for us to- burn out. We have plenty of liquidity, and things like that." But when you look at where we are right now, you have the perfect market for selling assets. You really have a good-- I'd say regulatory headset for how do you-- how do you kind of de-designate? So those two things have come together. Once, you know, we've announced-- this morning the commercial real estate transaction. With that in Synchrony, you know, the remaining piece is maybe $170 or $100 billion of assets. We think-- you know, there's buyers for all of these things, you know. We've had lots of incoming calls over the last couple months, you know, because of the way I wrote the annual report, and you know, things like that, so.
DAVID FABER: Right, now your shareholder letter certainly--
JEFF IMMELT: It was pretty clear.
DAVID FABER: --in a way telegraphed that, "This is the road we're going down." Not necessarily that it was happening that quickly.
JEFF IMMELT: Exactly. But it-- so-- I just think all those things together-- there's never, like, a perfect time. But we felt like these things were coming together. And at the end of the day, being able to re-rate the company as a premium, industrial company with a very small financial service business that really complements the industrial assets, I think is the highest-- is really a value-creating move.
DAVID FABER: But it's not one without risk, as everything is. I mean, this did contribute significant amounts of earnings.
JEFF IMMELT: Uh-huh (AFFIRM).
DAVID FABER: To this company.
JEFF IMMELT: Look this is a great-- this is a great set of businesses. Really, it's a great team, it's a great set of businesses. It's been a big part of our history. You know, we're proud of GE Capital. We just think the assets are worth more to somebody else today than they are to us. And from an investor standpoint, you know, fundamentally-- I think, you know, we're announcing this morning that we'rewe've got the Synchrony split, we-- the board has authorized a $50 billion buy back. We've got dividends that are quite attractive today. You know, basically you can hit the same E.P.S. numbers only with 90% industrial instead of 75, or things like that. We just think that's a better G.E. So the businesses, we're proud of the businesses. We just think we're at a moment in time when they're worth more. I mean, what Synchrony shows-- what Australia consumer shows, what even real estate shows, is these assets are worth more to other people than they are to G.E.
DAVID FABER: Synchrony's done very well in the market since you floated it. And of course there's a lot more behind that in terms of what you're going to sell. Or-- was that partially helpful in your thinking--
JEFF IMMELT: Sure.
DAVID FABER: --in terms of how well that did?
JEFF IMMELT: Absolutely. You know, again, I think there's various data points. But we were quite impressed with what Synchrony's done. I think the Australia transaction was very attractive, and-- and you become-- you know, you become convinced that if we think investors are valuing our financial service assets at one times book, and people are paying two times book when we sell them, that's a pretty good clue that they might be worth more on the outside. And so you know, our industrial businesses, David, are you know, 15, 16, 17% returns. Financial services is eight, right? So it's-- from a capital allocation--
DAVID FABER: Was the company--
JEFF IMMELT: --standpoint, it's-- it's an easy trade.
DAVID FABER: Yeah. I mean, was the company getting penalized in your opinion, by having financial services?
JEFF IMMELT: Yeah, look, I think it's a classic-- we're a classic sum of the parts, right? So you get-- you get-- people blend the financial and industrial. I'd say but beyond that, I think this move just takes an element of risk away from the company. You know, in other words I think industrial-- you-- investors can see them and touch them. They're more consistent, right? You
DAVID FABER: They go through cycles, though.
JEFF IMMELT: But I mean, in terms of the blend of assets we've got, you really have a chance-- I think this move really just makes the company more consistent and lower risk than it was before. So I do think, to a certain extent, where we had gotten to in financial services, it was just starkly different than where we were on the industrial side.
DAVID FABER: It wasn't always this way. I mean, there was a time, certainly-- your predecessor, and even in-- during your tenure which is now over 13 years-- 13-and-a-half years in length, where G.E. Capital was considered one of the core assets. Did the financial crisis change your opinion?
JEFF IMMELT: Well, look, I think the world for financial services has changed dramatically. I mean, pre-crisis it was eight-to-one leverage. It was-- you know, just a different world. I think as we plug into the world today with-- wholesale funding, you know-- bigness is a bad thing, not necessarily a good thing. I think just the ability to get a good return is really difficult today. And at the end of the day, our primary job (maybe more than most companies) is capital allocation. And if you've got a side of the company that's-- can generate a 15, or 17% return in a side that's really-- feels like it's going be hard to even return our cost to capital, it's an easy capital allocation trade. And look, you've been doing this a long time. You know markets change. And I think to a certain extent at financial services, this isn't a cycle. This is a generational move, you know. This is a long-term-- change in terms of how people view size and liquidity and things like that.
DAVID FABER: You think this is here to stay.
JEFF IMMELT: I personally, I do.
DAVID FABER: Which I would assume informs your decision in part to--
JEFF IMMELT: It actually help-- helps us--
DAVID FABER: --part with much of the decision.
JEFF IMMELT: --helps us make the decision as well.
DAVID FABER: You talk about capital allocation. A good deal of the capital that will be coming back, so to speak, from this $50 billion is going to be used to repurchase shares. Why is that a good use of G.E.'s capital?
JEFF IMMELT: Look-- you know, David, we've got great organic investment in our industrial assets. You know, if you look at aviation, energy, oil and gas, healthcare, we've got big scale businesses that we continue to invest in. We've allowed on our capital plan the ability to still do both on acquisitions in that-- in that vein. Synchrony is $20 billion, that's a split. So that's a share buyback by definition. And we just think for-- from an investor standpoint-- it really allowing them to model the company, and our intent is to buy back stock. And that gives an investor in G.E. the chance to say, "They're going to get the same E.P.S.-- as we execute this plan as they did before, only with a better mix." And I think that's-- from an investor standpoint, when we look at- how we view capital allocation, that's very attractive. And then the dividend continues to be a nice yield on the dividend as we go forward. So it just felt like that was the right formula for us, given where we are today.
DAVID FABER: But when you make a decision to buyback that much stock, you also one would expect think it's cheap. Do you?
JEFF IMMELT: Well, look, there-- how many-- CEOs have you interviewed recently that didn't think their stock was cheap?
DAVID FABER: Most do, you know, it's like Elon Musk one day said something like, "No, I wouldn't buy it."
JEFF IMMELT: But look, I think-- I think this gives us a chance to give-- reward our investors. Allow them that are in it for the long term to see the company in that light, in terms of better E.P.S. with better mix. But I go back, Dave-- you know, we invest a lot in R & D. every year, we invest a lot in Capex every year. We've got good organic growth programs. You know, this is a company that's not starving itself, for lack of growth capital, in terms of where we go.
DAVID FABER: But when you make a decision to use the bulk of the proceeds that are coming back for share repurchase, I mean, they could be conceivably used for other things, couldn't they?
JEFF IMMELT: Yeah, well look, I-- again, I think the base plan is to do the buyback. You know, we always look at different things. But I think this is an important message to investors. And the fact that the board has authorized a $50 billion stock buyback, that says we're quite serious about it.
DAVID FABER: That's a big number. That's--
JEFF IMMELT: That says we're quite serious about.
DAVID FABER: Even in this world of big numbers, that's still a very large number.
JEFF IMMELT: It's a good number, it's a good number yeah.
DAVID FABER: And you're going to get your shares outstanding down to as low as perhaps—to --$8 billion or $8.5?
JEFF IMMELT: $8 billion-- eight-- $8.5 billion Which I think is a good thing as well.
DAVID FABER: Why?
JEFF IMMELT: Again, I- just think it's a narrower float. I think that's a positive. It also gives you more-- I'd say utility around the dividend as well, as time goes on. You know, you grow the dividend, it's not as much-- cash out as you do that. So I think there's a number of good things that happen as we reduce-- the number of shares outstanding.
DAVID FABER: Jeff, this is your company now. I mean, fully, completely, the stamp of Jeff Immelt and his tenure as the chairman and CEO of G.E. will be felt for years to come, even after you leave.
JEFF IMMELT: Uh-huh.
DAVID FABER: You happy with what you've done?
JEFF IMMELT: I am. I love the company today. I love the-- this high-tech infrastructure space where we think we have real, competitive advantage. It-- you know, we've got great technology, global footprint. You know, massive backlog in the installed base-- a good structure for success. I think financing, you know, with GCass and energy finance also allows us-- so fundamentally everything that we're in today we're both competitively advantaged in and we're good at. And I think in the world we live in, with slow growth and volatility, this is, today, is you know, execution is king. And people that are really deep into industries are going to win. And I think that's-- plays well to us.
DAVID FABER: Are you done? Are you-- is this the company you want, with the portfolio of businesses you want?
JEFF IMMELT: I think the one thing-- mistake you could never make is to say you're done, you know. The world changes, the day that I don't get up every morning with a thousand ideas of how to make the company better, is the last day, you know. I'm not there. I actually see ways the company can be improved. But I love where the company's positioned right now, I really do.
DAVID FABER: Oil and gas, I mean, we talked about it at length the last time you joined us on CNBC. You've made significant investments there. And right now, it's not looking like a particularly healthy business, given what's happened to--
JEFF IMMELT: Let me--
DAVID FABER: --the underlying fuel.
JEFF IMMELT: --let me make two points, David. The first point I make is if I-- and I think you did an interview in 2001 or 2005, the subject would have been aviation. Our aviation business was horrible in 2000-- you know, you had the 9/11 tragedy and SARS. And what benefited us at that period of time was the oil and gas business, or the healthcare business, or other businesses. So one of the strengths of G.E. is we can accomplish good E.P.S. growth without every business-- always in a great cycle. So we've told investors $1.10 to a $1.20 industrial E.P.S. in '15. And we feel great about those numbers. We-- you know, we're on track to achieve those numbers, and we're going to-- we-- you know, we're going to-- do that and do that well. The second thing I make is, you know, our oil and gas business is doing okay. You know, in-- in other words, everybody can see the price of oil. But we have a diversified set of businesses. Some are going to do better than others. But so far in the year, our oil and gas business is actually doing okay. And we-- you know, we'll keep watching kind of where we go. But you know, we run it well, and we'll see where we go.
DAVID FABER: You know, I wonder though, because the chorus has certainly been out there for some time, "Well, they've have to figure out a way to separate G.E. Capital from this business." You're doing it, it's happening. How long until, "Well, aviation gets a much higher multiple?" You know, if that was spun out, or if it was separated, now especially with the low multiple G.E. Capital business no longer a part of this thing, you could make an argument the sum of the parts is greater than the whole.
JEFF IMMELT: Look, I think if you look at all of our industrial businesses, we have in the annual report what we call the G.E. store. So you basically have underlying technology-- global footprint, installed base. I think we can demonstrate that we really have great synergies across the portfolio, into those businesses. And we can show how they turn up in returns, and margins, and market share, and all the very valuable things. Aviation takes from healthcare and vice versa. Healthcare--
DAVID FABER: It does? Aviation takes from healthcare?
JEFF IMMELT: Oh for sure. All the inspection technology comes out of healthcare. Healthcare was the-- let's say the anchor tenant in China. Long before aviation ever got there, healthcare had thousands of people there. A lot of whom now work in other G.E. businesses. So we very-- we feel very strongly about the- infrastructure business we have going forward. But look, you know, David, I've sold NBC, G.E. Capital, appliances, insurance, plastics.
DAVID FABER: Lighting.
JEFF IMMELT: Lighting. You know, I think we've all-- lighting actually is still in the portfolio and doing well.
DAVID FABER: Sorry.
JEFF IMMELT: Yeah, sorry, yeah.
DAVID FABER: I didn't mean that, I didn't mean to say--
JEFF IMMELT: But--I think we've shown the ability and the willingness to be thoughtful about the portfolio as time goes on. And critical about what fits and doesn't fit.
DAVID FABER: Right. I yeah, plastics, appliances, NBC.
JEFF IMMELT: NBC.
DAVID FABER: Some would say, "You sold them at the wrong time, and bought some other assets at the wrong time." They look back-- there's always a critic. "You know what, NBC-- okay it makes sense for the sale, but man, they sold it right after the crisis. They got a very low multiple. Look what Comcast has been able to do." And then they redeployed some of that money into oil and gas, which is not performing well.
JEFF IMMELT: But I think I-- I'd look over the history, right? We've exited-- insurance, plastics, NBC Universal, appliances, and now financial services. I think our batting average is pretty damn good. When you look over all those transactions over time, I think when you look at NBC in particular. You know, we had a 15% return on the 25 years-- that we owned it. It did what we needed in that transaction. There's always going to be people-- be people that say, "It was too late, it was too early." But- that transaction gave everything our investors needed at that time. On the buy side, look David, I-- think we've got a great oil and gas business. We've got a diversified power business, we acquired Enron's Wind business for $200 million. It's generated, I don't know, $6 or $7 billion of cash since we bought it.
DAVID FABER: That's not bad.
JEFF IMMELT: Amersham is a at 2x probably, if you-- if you looked at what it's worth today versus what we bought it for, so.
DAVID FABER: Well, it's-- it's quite some time ago at this point. We're talking over ten--
JEFF IMMELT: No, no, but I'm--
DAVID FABER: --ten years ago.
JEFF IMMELT: -- I'm sayin' it's generating more than a billion dollars of cash a year, plus it's worth a lot more than we paid for it. It's a mid-teens return since we started it, so.
DAVID FABER: Amersham is, because people still look at that one and say, "No, I felt like they overpaid."
JEFF IMMELT: Look this-- but-- look, I think you know, there's-- urban myth, and then-- then there's reality. Not all of them have been perfect. I'd say that. But I think when you look at the way-- the trade's we've made in the portfolio over a decade or so, we've repositioned the company for the future in a very good way.
DAVID FABER: So are you frustrated that you haven't been rewarded for that--
JEFF IMMELT: No, look, I mean--
DAVID FABER: --in the stock market?
JEFF IMMELT: --I love where we are today. Now's the--
DAVID FABER: But you've gotta be-- come on, Jeff, you've got to be--
JEFF IMMELT: This--
DAVID FABER: --unhappy with the fact that the stock's still 25.
JEFF IMMELT: I--just think that's not the way you can-- you know, what I feel is different than where-- where I would say this is the day (SIC). This is the great time. I love where the company is today, and I'm looking forward. That is the absolutely truth, and that's the only way you can run a company like G.E. I like where we are today, I like where we're going in the future. I think this is a great stock to invest in right now.
DAVID FABER: And it's a great stock to invest in why?
JEFF IMMELT: You've got a tremendous-- industrial company and a chance to kind of re-rate the whole company as a premier industrial company. You've got a fantastic-- set of-- cash flow options for investors coming at you, between buyback and dividend. And I think we've got-- wind at our back in terms of selling these financial assets. That's-- that is-- an extremely good one, two, three punch for investors.
DAVID FABER: You know, you position the company now as a growth company. You did that to a certain extent in your letter as well. I mean, some of us have different views of growth. I remember growth at G.E. being double-digit, top line growth. Are you ever going to get back to that?
JEFF IMMELT: I think in this-- look, in this environment, slow growth world that we're in today, you know, I think being able to grow organically, mid-single digits over-- time is not a bad-- opportunity. We've got good margin opportunities-- inside that. But I think if you look at our industrial E.P.S. between-- organic growth, margin enhancement, Alstom coming in, share repurchase coming in, you can have an industrial E.P.S. growth that is really substantial, over your-- as you look at the next couple years.
DAVID FABER: You believe that will be-- you believe that will be to a certain extent the case?
JEFF IMMELT: I really do, I really do. In the world we see today, you know. So I'm not counting on things getting magically better, or you know, blah blah blah anything. I think in the world we see today, we think that's-- we are well positioned for that.
DAVID FABER: In-- terms of the disposition of the assets at G.E. Capital itself-- it seems as though it's going to take some time. Is that your expectation that it will take as long as 2018 for this company you're talking about? Or is it going to move fast?
JEFF IMMELT: I think that's the outside-- I think what we've tried to show to investors is kind of-- a highly achievable growth path, that's very credible and conservative. I--think you know, today the gun went off. There's going to be business development teams in every financial service company in the world that's doing an assessment of what they think about G.E. Capital assets. Some have already started that, based on things we've said in the past. And these are—you know look, our mid-market lending and leasing business, fantastic. Our private equity sponsor business, amazing. Our franchise finance business, awesome. Some of our European assets are world class, right? So you've got a bunch of stuff in the portfolio that people are going to look at and say, "In a slow growth, low interest rate, low-yield world, you know, anything that gives you yield is extremely valuable." And these are safe and secure, well-run assets.
DAVID FABER: So you think it could move fairly quickly?
JEFF IMMELT: I-- you know, we're-- ready for that. We'll see how it happens. There's always risk to a plan like this. But we're quite-- we-think the timing right now, and--there's just nothing out there that says it will change anytime soon. Again Dave, low growth, right? Low interest rates, lots of liquidity, search for yield.
DAVID FABER: It should benefit you.
JEFF IMMELT: Should-- really--
DAVID FABER: Both for the sale of the businesses, in a multiple and conceivably I guess some assets as well. 'Cause it's--both, right?
JEFF IMMELT: Exactly, exactly.
DAVID FABER: What happens to Keith Sherin?
JEFF IMMELT: Look, Keith's always-- been a great partner over time, and he's going to be active and involved in this. And we'll always find something great for Keith to do. He's just an awesome leader.
DAVID FABER: So you don't expect to see him leaving the company anytime soon?
JEFF IMMELT: Oh gosh, no. I'd be so lonely without Keith, I don't know.
DAVID FABER: You'd be lonely without him. And what about you, when you think about your future? I mean, you know--
JEFF IMMELT: Look, I think-- look, I-think there's always a right time for this. I-- I've done it for 13 years, I'm still fresh, I still have a lot of ideas for the company. I love the company. But you know, there's always-- there's always the right time, it's just not today. But you know, board's got a plan. And I-- work-- one day at a time.
DAVID FABER: To those who would say, "You know what, this feels like there was an activist there. Or there was somebody saying, 'You better get moving or else I'm coming after you publicly.'"
JEFF IMMELT: I—I think it denigrates to a certain extent the fact that our management team's always thinking about these things, you know. This is more about arithmetic. This is just you know, better-- returns on capital, things like that. And so I- think this is an obvious move, yeah.
DAVID FABER: And I guess finally, just to come back to the stock price, clearly you do these things in part to generate shareholder value. That's what we're all-- that's what you're all about.
JEFF IMMELT: Sure.
DAVID FABER: You were on with us-- not that long ago-- and we talked about the same idea of the-- and I had some calls from some of our old colleagues who may own the stock still. And the frustration is palpable on their part over the last ten years. And they talk about the fact that the stock has not kept up with the pace of the S&P. What do you say to them?
JEFF IMMELT: Look, we had a change. We had a change in scale. We've done the right things for the company. You know, it's a much better product today as a company than it was in the past, and we think investors are going to see that. Sometimes your job is to drive change, massive change. And sometimes you have to do it with a big company, and sometimes you have to do it with a great company. And I think that's what we've done.
DAVID FABER: You know, when we think about leaders of companies and great companies, like yourself, we can take some time in sort of assessing when do you think the report card on Jeff Immelt will be in? How many years will have to go by before we have a real sense as to--
JEFF IMMELT: I'm going to let you--
DAVID FABER: --everything you've done.
JEFF IMMELT: I'm going to let you answer that one.
DAVID FABER: You're going to let me--
JEFF IMMELT: And--Jim, and-- and Carl and the rest of you, yeah.
DAVID FABER: You've-- 'cause you've done a lot.
JEFF IMMELT: Oh yeah, no, no.
DAVID FABER: You've done a lot. It's not like you sat there and said, "Okay I like this portfolio of businesses." I mean--
JEFF IMMELT: It's a different-- it's a different company today.
DAVID FABER: --when I look back, I went to the 2001 annual report. It's a very different company. It's your company.
JEFF IMMELT: Yep, and I love it. I love-- I love how we're positioned right now, I really do.
DAVID FABER: Jeff, thank you.
JEFF IMMELT: David, thanks.
DAVID FABER: My pleasure.
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