Famed activist short seller Carson Block pulls no punches as he takes aim at Canada, Jack Ma and the U.S. pharmaceutical industry in this interview with Brian Price. Block, who serves as CIO of Muddy Waters Research, discusses the red flags he looks for when hunting for fraud, and reveals which companies are currently on his radar. Carson also touches on how his line of work has led to both tremendous success and death threats. Filmed December 4, 2018 in New York.
A culture that disdained bad news contributed to overoptimistic forecasts and botched strategies
Jeffrey Immelt, the longtime boss at General Electric Co. , was a polished presenter who held court each year at a waterfront resort off Sarasota, Fla., where industrial executives and Wall Street listened for his outlook on the conglomerate.
“This is a strong, very strong company,” Mr. Immelt said at the event last May.
.. GE’s precipitous fall, following years of treading water while the overall economy grew, was exacerbated, some insiders say, by what they call “success theater.”
Immelt and his top deputies projected an optimism about GE’s business and its future that didn’t always match the reality of its operations or its markets
.. “The history of GE is to selectively only provide positive information,” said Deutsche Bank analyst John Inch, who has a “sell” rating on the stock. “There is a credibility gap between what they say and the reality of what is to come.”
.. “GE itself has never been a culture where people can say, ‘I can’t.’ ”
.. GE once had the highest market value of any U.S. corporation. Its alumni have gone on to run companies such as Boeing and Chrysler.
.. Few knew just how badly ailing the American icon was. Even GE’s board didn’t realize the depth of problems in the biggest division, GE Power, until months after directors had replaced Mr. Immelt
.. A spokesman for the former CEO pointed to his decision to purchase $8 million worth of GE shares in 2016 and 2017. That included 100,000 shares in mid-May at a price roughly twice today’s.
.. But Mr. Immelt didn’t like hearing bad news, said several executives who worked with him, and didn’t like delivering bad news, either. He wanted people to make their sales and financial targets and thought he could make the numbers, too, they said.
.. Over the past three years, GE spent more than $29 billion on share repurchases, at an average price of almost $30, twice the current level. That included billions of dollars spent less than a year before GE suddenly found itself strapped for cash last fall.
.. Trian Fund Management LP, which invested $2.5 billion in GE in 2015, wanted it to buy back even more stock. The activist investor urged the company to borrow $20 billion for repurchases (which it didn’t do), based on a belief that the profits Mr. Immelt was promising would send the stock soaring when they arrived.
.. Instead, at Mr. Immelt’s retirement in August the stock was below its level when he took over 16 years earlier. Including dividends, GE gained 8% with Mr. Immelt at the helm, while the S&P 500 rose 214%. Since he stepped down, the stock has lost about 43%, erasing almost $94 billion in market value
.. Instead of $2 a share GE now projects $1 to $1.07.
.. Several directors discussed in November whether the entire board should be fired
.. Jack Welch, delivered steady profit growth and sent shares soaring in the 1980s and ’90s by striking deals and aggressively slashing costs and jobs. Mr. Welch also built up a huge lending business called GE Capital that for years generated outsize profits—but nearly sank the company during the financial crisis on Mr. Immelt’s watch.
.. Results were strong at two of GE’s big units, aviation and health care (medical equipment).
.. Acquiring companies that help drillers pump and transport fuel, he had GE spend more than $14 billion over 10 years, most of it based on higher oil prices than today’s.
.. Mr. Immelt’s optimism was part of the problem, according to some people close to the situation. They said he told the board that management had identified risks in the power business, yet downplayed them. The probability and risk were way off, one said.
.. Lisa Davis, the U.S. chief of Siemens, said the German company’s executives “have seen this decline coming for the last several years.” So Siemens had reduced its capacity in its power business, she said, while GE bought more.
.. According to former executives, the upgrades meant lower service fees for customers, in exchange for one-time upgrade costs, meaning that future sales were being pulled forward.
a common lesson this year: The pay is great, but job security has rarely been shakier.
chief executive churn reflects a broader reality for the country’s business elite: An array of challenges—from
- increasing impatience on Wall Street and in boardrooms to
- a corporate landscape rapidly transformed by new technologies and rival upstarts
—have made the top job tougher and more precarious than just a few years ago
.. The typical CEO of a major company a decade ago resembled a ship captain “who could rally a group of people with a lot of process and procedures,” said Deborah Rubin, a senior partner at RHR International, a leadership-development firm. “Today’s CEO has to be much more like a race car driver,” she added. “You have to do the sharp maneuvers.”
.. Flush with more cash than ever, activist investors are pursuing bigger corporate prey.
.. Even GE CEO Jeff Immelt’s disclosure that he would depart this summer came amid brewing tensions with activist investor Nelson Peltz
.. Mr. Peltz’s Trian Fund Management LP had recently stepped up pressure on GE to cut costs more aggressively and boost profits, setting off speculation about when the longtime CEO might leave.
.. Growing shareholder clamor for quick results comes as new technologies are upending entire industries. If you run a retailer, for instance, “you are watching your whole market go away in just a matter of years,”
.. Likewise, Ford’s ouster of Mark Fields after less than three years in its highest job was the starkest sign yet of how tech players such as electric-car maker Tesla Inc. and Alphabet Inc.’s autonomous-car unit, Waymo, threaten the traditional auto sector.