Question

General Electric Co. inked the first deal to move itself away from banking -- by selling its private-equity-lending unit to Canada’s largest pension fund in a deal valued at about $12 billion.

It's the first piece of GE Capital Corp., the industrial conglomerate's finance arm, that the parent company has sold since announcing plans to exit the business in April. Investors offered the company modest applause for its deal, sending the stock up 0.3% on a day when broader markets were down.

GE Capital was at the epicenter of the storm after Lehman Brothers Holdings Inc. declared bankruptcy in September 2008. GE ultimately became one of the largest recipients of the federal government's lifelines during the financial crisis.

Here's a look at how GE's business has changed since then:

2008: To survive the financial crisis, GE froze its dividend, suspended its share-buyback program, scaled back its finance unit and made moves to reduce its reliance on short-term borrowing. It raised $15 billion by selling $12 billion in new shares and offering $3 billion of preferred stock to Warren Buffett‘s Berkshire Hathaway Inc.

2009: Mr. Immelt continued to scale back the company, announcing a deal with Comcast, which would give Comcast majority control of NBC Universal.

2010: GE made several big (and what now look like ill-timed) bets on oil, including the announcement of a $3 billion deal to buy Dallas-based oil-and-gas equipment maker Dresser Inc. and a $1.25 billion deal to acquire U.K.’s Wellstream Holdings PLC, a bet on deep-water oil exploration.

2011: GE paid back Mr. Buffett and continued its acquisitions of oil and gas assets, announcing a deal to buy the well-support division of John Wood PLC, which makes submersible electric pumps that help extract oil, for $2.8 billion.

2013: Mr. Immelt paid $3.3 billion for Lufkin Industries Inc., a drilling-equipment maker positioned to benefit from North American shale drilling. GE also acquired Italian aviation supplier Avio SpA for $4.3 billion.

The conglomerate raised $18.1 billion by selling off its remaining stake in NBC Universal and 30 Rockefeller Center to Comcast Corp.

2014: GE sold off the electric toaster, self-cleaning ovens and other appliances it helped create to Sweden-based Electrolux AB for $3.3 billion, but the appliances still hold the GE name. Mr. Immelt also inked a $17 billion deal to buy Alstom‘s power-generation business, the company’s largest acquisition ever. The Alstom deal has not yet closed.

GE began the process of spinning off its consumer credit operation into a new stand-alone business, Synchrony Financial, through an initial public offering.

2015: GE said earlier this year that it would sell off $100 billion in assets in 2015.

In late 2014, GE agreed to sell its Budapest Bank unit to Hungary’s government for roughly $3.3 billion (It counts this deal in the $100 billion.). In March, GE sold the consumer-lending business of GE Capital in Australia and New Zealand to an investor group for roughly $6.3 billion. GE has also inked deals to sell roughly $26.5 billion in real estate to Blackstone Group LP.

That leaves the company with roughly $45 billion in assets left to sell this year by its own estimations. Earlier this month, the WSJ said that GE kicked off the auction for another large chunk of GE Capital -- U.S. portions of its dealer financing and corporate finance businesses, which provide loans for equipment purchases and truck vendors.

Meanwhile, as the WSJ's Ted Mann reported Tuesday morning, it's difficult to value exactly what's left of GE Capital as the industrial conglomerate uses several different measurements of its size and assets.

After the credit market turbulence, however, GE had difficulties in borrowing short-term debt. GE had a $50 million line of credit that they thought they would never need but were confident that would definitely get it when requested. Things however, changed dramatically during the financial crisis in 2008. GE couldn’t pull its line of credit because it would render the bank that granted the line bankrupt and cause a series of cascade bankruptcies after that. GE learned a painful lesson that a line of credit is not as good as cash.

What GE experienced illustrates how important working capital management to the firms’ financial position and risk.

In order to meet their working capital needs, companies have the option to hold cash or hold on to a line of credit.

Discuss:

questions to answer

1. Evaluate whether you would recommend companies to hold cash or to rely on the line of credit. Why or why not.

2. Would you make different recommendations for different types of firms?

3. What implications does liquidity management have on your recommendation?

4. Find news examples and evidences to support your position.

Answer 1

1)EVALUATE WHETHER YOU WOULD RECOMMEND COMPANIES TO HOLD CASH OR TO RELY ON THE LINE OF CREDIT WHY OR WHY NOT?

A) Evaluating the market turbulence in the entire case we can easily predict them to rely on the line of credit as it is easier and much more trustworthy than to actually hold the aces.Because it is a very simple illustration of the cash that was withheld with the company may use for misc things and can be turned into nothing as it does not have any return or the credit criteria so it is useful to understand that by withholding the goods in your own stake will help the companies to boom along with more results.

2)WOULD YOU MAKE DIFFERENT RECOMMENDATIONS FOR DIFFERENT TYPES OF FIRMS?

A) Yes,I would opt for the option of giving certain things to to certain companies depends upon the income that a company extracts and how it dealt with the continuous process of wealth maximization and profit terms so i would recommend different terms to different companies with respect to their net income for every year.

3)WHAT IMPLICATIONS DOES LIQUIDITY MANAGEMENT HAVE ON YOUR RECOMMENDATIONS?

A) Liquidity is a state where company tends to loose its charm and withdraws from all the responsibilities and finally comes to a closer or shutting it up,we implicate to observe the cash in hand and how to utilize the yearly and monthly working capital and how to improve and generate revenue thats the case that we dealt with.

4)FIND NEW EXAMPLES AND EVIDENCES TO SUPPORT YOUR POSITION?

A)It is quite unfair to really understand the position of the state we are and they were many companies where a state of liquidity tends to deep bigger and made it done on the companies.