General Electric has paid more than $7 billion (€6 billion) in investment banking fees since 2000, as Wall Street lenders reaped rewards from a frenzied period of dealmaking that culminated in a sinking share price and the eventual break-up of the best-known US conglomerate.
GE spent $2.3 billion on mergers and acquisition advice alone, according to figures from Refinitiv, as it built a sprawling empire through hundreds of deals. On Tuesday, the group that once made products ranging from lightbulbs to wind turbines was finally unwound when it announced plans to break up into three companies.
Windfall
The rise and fall of the GE conglomerate has resulted in a windfall for Wall Street with the Boston-based group spending another $3.3 billion on fees related to bonds, according to Refinitiv. It spent a further $800 million and $792 millio, on loan and equity fees, respectively.
Since 2000, the company has shelled out more on investment banking fees than any other US business, according to the Refinitiv figures. The next biggest spenders were Citi and JPMorgan, which paid their bankers $6.8 billion, while the biggest outlay at an industrial group was GM, which spent $3.8 billion.
Critics?have said the outsized fees are indicative of how bankers – who have profited despite GE’s market value falling about 75 per cent since 2000 – care more about completing lucrative transactions than acting in the best interests of their clients.
“GE has been on an acquiring spree for more than 20 years, with disastrous outcomes,” said Nuno Fernandes, professor of finance at IESE Business School.
Mr Fernandes added: “There’s a pernicious conflict of interest here . . . Because investment banks receive much larger fees when the deals are closed, bankers were always on the side of completing as many deals as possible, not on GE’s side.”
JPMorgan, Morgan Stanley, Citi and Goldman Sachs each netted more than $700 million from GE over the period. On Wednesday, GE announced a tender offer for $23 billionn worth of bonds as part of an effort to reduce its debt pile, which is likely to generate even more fees for the banks.
Relationship
JPMorgan has completed more deals for the company than any other bank, accounting for more than 10 per cent of all fees. The relationship stretches back to 1892 when American financier John Pierpont Morgan organised the merger between Thomas-Houston International Electric and Edison General Electric.
The industrial behemoth once sold products ranging from jet engines and refrigerators to financial services, a business model that came under immense strain during the 2008 financial crisis.
Successive chief executives have since tried to make the company more nimble by shedding assets and making targeted acquisitions, but they could not arrest the long-term decline in the share price.
GE has made hundreds of disposals over the past two decades, including the sale of its stake in television company NBCUniversal to Comcast in 2013 for $16.7 billion – advised by JPMorgan, Goldman Sachs and Citi – and the sale of its plastics unit to Saudi Arabia’s SABIC in 2007 for $11.6 billion.
Difficulties
The company has faced further difficulties during the coronavirus pandemic. Healthcare and aviation are its main profit drivers and have struggled owing to global supply chain shortages and the collapse in international air travel.
On Tuesday, GE brought down the curtain on its era as America’s best-known industrial group.
The company said it would separate its healthcare unit in 2023 while GE Renewable Energy, GE Power and GE Digital would be merged into a single energy-focused company that would be spun off in 2024. The original GE plans to focus on aviation.
Morgan Stanley, Goldman Sachs, JPMorgan and Citi declined to comment.
GE declined to comment on the size of fees paid to investment banks but said it was “focused on executing the transformation we’ve laid out - continuing to reduce debt and improve operating performance to deliver sustainable, profitable growth”. – Copyright The Financial Times Limited 2021
