GE Looking to Jettison Locomotive Business

[C855B]

https://www.reuters.com/article/us-ge-divestitures/ge-explores-divesting-its-transportation-healthcare-it-businesses-sources-idUSKBN1CV2NU

More info on Bloomberg and WSJ if you can get past their paywalls.

[Philip H]

Heard this from a couple of railfans in Buffalo over the weekend.  Their understanding is what's left of GE's financing unit is underwater and they are trying to raise capitol to offset the losses.  If you ask me that's the unit that should go.

[wazzou]

EMD should buy it, or Progress Rail or whatever they call themselves.

I bet it ends up in the hands of Warren Buffett so the BNSF can sell the UP locomotives. 

[MK]

Heard this from a couple of railfans in Buffalo over the weekend.  Their understanding is what's left of GE's financing unit is underwater and they are trying to raise capitol to offset the losses.  If you ask me that's the unit that should go.

Typical American business practice.  Let's get the rest of the company to help out instead of jetisoning the problem child.

[Mark W]

EMD should buy it, or Progress Rail or whatever they call themselves.

I bet it ends up in the hands of Warren Buffett so the BNSF can sell the UP locomotives. 

It already was Buffetts, but looks like he dumped everything back in August.  Likely the snowball causing the avalanche.
Reasons are beyond me; I would have thought GE Locomotive had an easy future living in the same house as BNSF. 

[C855B]

Without verifying this against the annual report, I don't think the transportation business is that big a unit relative to everything else under the GE umbrella. A smaller division means they're more likely to find a buyer. They have been bleeding cap value badly in 2017 - stock around a 35% drop in an "up" market - and have to do something.

[nkalanaga]

Did Buffett own stock in just GE Locomotive, or was his stock in GE as a whole?  If it was in GE, maybe he decided that the rest of the company wasn't worth keeping, and will now buy the locomotive division as a stand-alone company.  Or maybe he feels that locomotives aren't a growth industry, and that the market is saturated, or some other reason for NOT getting into the business.

[C855B]

As a whole. Possibly Buffett was being Buffett, reading the writing on the wall. OTOH, Berkshire is a 500 pound gorilla in the markets, so Buffett deciding to bail moves the needle, causing others to bail, and it's a chain reaction. That doesn't dismiss that GE's entire operation, especially the energy and related divisions have been destabilized due to uncertainty about fuels sourcing and emissions regulations, which also affects transportation. They have to plan for 10-year and longer production capability, not what's going to be "the next big thing" dependent on the political winds. Maybe this is what Warren was reading, and decided to get out of the very capital-intensive industry until things settled down.

EDIT: Nope, none of the above. Looking at analysts' reports, cash flow and P:E became problems for GE in 2016. B-H appears to have dumped the stock on fundamentals. Spinning-off the smaller divisions is probably seen as the easiest path to cash generation.

[Mark5]

Did Buffett own stock in just GE Locomotive, or was his stock in GE as a whole?

Transportation is a division of GE, you cant buy stock in a division. So it's GE.

[Lenny53]

Maybe BBD could buy it, no wait that would be terrible nothing would get to the customers.   

[nkalanaga]

Mark5:  As a true division, I'll assume you're right.  I've never bought stock in anything. 

A subsidiary, now, can be either wholly or partially owned, so if GE Locomotives had been a subsidiary of GE, it could be possible to own stock just in it.  As big as GE is, I was thinking subsidiary, rather than division, so my mistake.

If Buffett buys GE Locomotives, and also owns BNSF, I wonder if there'd be any antitrust problems?

[muktown128]

I would not expect anti-trust issues if Buffett buys GE loco.  They are not direct competitors. 
However, Progress Rail (or Caterpillar, since they own Progress Rail) probably could not buy GE loco due to anti-trust concerns.
Anti-trust is basically about monopolizing a market and restricting / eliminating competition.

Regards,
Scott

[Spades]

Shortly after Warren Buffet purchased Netjets,  he purchased their training provider Flight Safety. He is definitely into the market integration thing. He is on record as saying BNSF is a steady earner not a great earner for BH.

[C855B]

... Warren Buffet ... is definitely into the market integration thing. ...

"Vertical integration" is what it's called - when a company controls all or most of the processes between raw materials and the end user. Classic example is the way oil companies used to work - they owned the wells, the pipeline, refineries, regional distribution, the trucks to get the fuel to the stations, and the retail stations.

What's funny is vertical integration is completely out of style. Oil companies again as an example, nobody, or nearly so, is vertical any more. All phases are separate entities. (A possible exception coming to mind is Sinclair.) For B-H to buck this trend is revealing.

... He is on record as saying BNSF is a steady earner not a great earner for BH.

That's interesting. What he's not saying is it's still a great value, and Buffett is a value investor. I see BNSF and UP as cut from the same cloth, and UP's stock has been insane - up 350% - in the seven years since Warren bought BNSF. NS is up 260%, even lowly CSX is up 332%, although nearly all of that since EHH took the helm. DJIA, in contrast, is up a measly 230% in the same period. In so many words, railroading in the past 10 years or so has been a great investment.

[Missaberoad]

"Vertical integration" is what it's called - when a company controls all or most of the processes between raw materials and the end user. Classic example is the way oil companies used to work - they owned the wells, the pipeline, refineries, regional distribution, the trucks to get the fuel to the stations, and the retail stations.

Steel manufacturers were another good example, they owned the Iron ore mines, the Railroads, the Ships...