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UPDATE 3-GE merges power units as exec who lost out on GE CEO job retires

(Rewrites, add details detail on former executives, updates share price)

SEATTLE, June 14 (Reuters) - General Electric Co said on Wednesday it will combine its power and energy distribution businesses to create its largest unit by revenue as the top executive at GE Power announced his retirement after failing to win the conglomerate's CEO job.

The changes were expected after Steve Bolze, a 24-year GE veteran who heads the power unit, lost out to John Flannery, chief of GE's Healthcare division, as successor to CEO Jeff Immelt.

Bolze, 54, said he would retire on July 3.

GE said it will add its energy connections business - which provides power distribution and conversion equipment - to GE Power in order to create a unit with $41.9 billion in revenue, making it GE's largest, accounting for 30 percent of its industrial revenue.

The company named connections chief Russell Stokes, 20-year GE veteran, to lead the combined business, which will keep the name GE Power. Stokes is 45.

GE changes CEOs rarely and the naming of a new leader typically prompts the departure of leaders passed up for the top job. When Immelt took the title in 2001 from retiring CEO Jack Welch, prominent executives including Jim McNerney and Bob Nardelli left. McNerney went on to lead Boeing Co while Nardelli subsequently headed Home Depot Inc and Chrysler.

"The brain drain is more muted this time," said Deane Dray, an analyst at RBC Capital Markets.

Bolze said in a letter to employees that he had told Immelt he would retire if he was not chosen to lead the company.

GE did not make the list of candidates it was considering for CEO public. Alongside Flannery and Bolze, Dray said it likely included GE Oil and Gas unit head Lorenzo Simonelli and Chief Financial Officer Jeff Bornstein.

Given that Simonelli heads the oil and gas operations, which are soon to be merged with Baker Hughes Inc to create a new company, and Bornstein was recently named a vice chairman of GE, neither is likely to leave, Dray said. GE declined comment.

Merging the energy connections unit into GE Power is not likely to significantly alter earnings or cash flow, so was not a major concern to investors, Dray added.

GE stock was up 0.9 percent at $28.71 in afternoon trading on the New York Stock Exchange.

GE plans to sell the lighting business that is part of the energy connections unit, reducing revenue. It will report results for the combined GE Power unit in the third quarter.

Flannery, who takes over as CEO on Aug. 1, said on Monday after his appointment was announced that he will conduct a swift review of GE's businesses and will report the results in "the fall."

The review will look at GE's businesses with "no constraint," but GE's strategy of making software-related products central its businesses will not change, he said. (Reporting by Alwyn Scott; Editing by Chizu Nomiyama and Bill Rigby)