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Dear Mr. Berko:

L.F., Elkhart, Ind.

Dear L.F.:

General Electric Co. (GE-$30.40) is one of the largest and most diversified industrial companies in the world. In the past 10 years, GE’s sales have grown from $51 billion to an expected $200 billion this year. GE’s earnings, cash flow and dividends have tripled, and capital spending exploded by 700 percent in that same time frame.

But after reaching $60 a share in mid-2000, GE’s share price began to implode (even though revenues, earnings and dividends continues to post good growth), and neither man nor beast nor machine seem able to pull GE from its huge hole.

GE is one of the largest appliance manufacturers in the world; it’s also the world’s leading provider of jet engines and is a leading-edge designer and producer of imaging, diagnostic and other medical products. GE has been in the lighting business ever since Tom Edison discovered a better filament; it owns NBC, is the world’s leading producer of locomotives and for the past 100 years has been in the forefront of water and wastewater treatment.

GE is a huge health and life insurance company; a leading provider of credit services to auto dealers and mortgage lenders worldwide; and its commercial finance division conducts business in 36 countries. GE provides energy products and services to 122 countries, its wide range of integrated equipment systems ensures reliable power delivery to more than 100 nations, and its consumer electronics division is represented in nearly every home in America. And this is just the tip of the GE pyramid.

GE’s imprimatur is on almost every corner, nook, cranny, airplane, truck bus, TV, cooling and heating system, research lab, medical and dental office, ad nauseam in the United States and Europe. Half of GE’s $200 million in revenues derive from overseas, and global revenue growth topped 22 percent last year.

This is a magnificent company. And in spite of Wall Street’s continuing “buy” recommendations, in spite of several billion shares owned by mutual funds and institutions, the value of GE’s shares continues to melt like an ice cube in a frying pan.

The solution is simple. GE is just too, too, too big. There’s comfort in bigness, sort of like having a pet elephant in your room to protect you from intruders. But heaven help you if that elephant sneezes and rolls over.

As I see it, GE has four big problems:

1. It’s sooo big that exceptional results in several divisions have about as much impact on the company as would the arrival of another fly at a picnic.

2. Its board of directors is a bunch of prissy, effete WASPs who are fiercely loyal to management and don’t give a ficus or fig about shareholder value.

3. The managers are so comfortable in executive “snivel” chairs that they work hard primarily at protecting their turf and the status quo.

4. GE has dozens of small businesses representing more than $22 billion in revenues that are as important to GE as wings are to a kangaroo. This diverse base of non-core businesses is a drag on the company’s resources and unimportant to GE’s bottom line. They’re worth a lot more operating independently than as part of GE’s menagerie.

In order to improve shareholder value, GE must be drawn and quartered and fire its decadent and do-nothing board of directors. That club has failed GE’s shareholders. Because the sum of the parts is usually worth more than the whole, GE should be carved into four or five autonomous divisions, each of which would trade on the New York Stock Exchange independent of the others. Each would have its own officers, board of directors and business plan.

Management considered this idea several years ago, but it never gained traction under Chief Executive Officer Jeff Immelt, who insisted that GE had to get bigger and bigger if revenues, earning and dividends were to grow. Well, GE did get bigger, but net profit margins and the stock price crashed like a coconut from a tall palm tree.

AT&T took the divestiture path 26 years ago, and shareholder value increased beyond investors’ imaginations. However, if GE continues to remain an over-huge, bureaucratic conglomerate, the stock will continue to trade in the slumps, and you may not recover your loss until after the presidential elections in 2012.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@comcast.net. © Copley News Service