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It would have been hard to imagine that General Electric lost $ 200 billion of its market value two years ago, but a series of information to be provided, combined with the low demand for gas turbines and a large debt, have made the unthinkable a reality.
The dramatic decline has left investors wondering what was the worst possible scenario, as new CEO Larry Culp tries to transform himself.
On the basis of what often happens with companies under financial pressure, it's easy to imagine four general scenarios for GE, a 126-year-old company that has its roots in Thomas Edison's efforts to leverage electricity .
Success
One of the possibilities is that Culp quickly transforms GE to prevent the collapse of the course of action. If all goes well, GE will be a smaller, simpler and more stable company, with companies selling aircraft engines, power generation equipment and wind turbines.
Revenue growth is unlikely to be spectacular and profit margins will likely continue to lag behind industry leaders such as Roper Technologies and 3M.
But GE would have the opportunity to recover a higher credit rating and reactivate the dividend payment, which will help recover investors. At best, Culp will sell assets, reduce debt and further reduce financial activity, GE Capital, without spending too much money. A big challenge is solving the deep problems of the famous GE division, which produces gas turbines.
Culp has many motives: if he manages to bring GE stock prices back to its level by the end of 2016, he could record an unexpected gain of more than $ 200 million.
To survive
In another scenario, Boston-based GE reaches a similar end-state, but only after a long, protracted job.
Investors worry about the debt burden of the company, which amounts to more than $ 100 billion. GE bonds are traded as "junk", although the company still maintains an investment grade rating.
GE, whose credit rating has been downgraded by the three major three-tier rating agencies on the "junk" category since early October, is facing "run-rate risks related to many transactions and changes organizations" , said Fitch Rating on Nov. 2.
GE declined to comment, except to mention its sources of liquidity and its ability to take advantage of the commercial paper market to meet its working capital requirements.
Financial failure
Nobody predicts the disappearance of GE. However, the market has already seen giants fall. Lehman Brothers and Enron are gone; General Motors went bankrupt and survived thanks to the rescue of the United States. For GE, stars should align with the company to bankrupt it. An economic recession that would undermine GE's healthy operations and prevent the transformation of the energy sector, as well as a larger financial hole than expected at GE Capital, would make the company worse off.
GE's latest downfall "is not really about liquidity," Steve Tusa, an analyst at JPMorgan Chase & Co., said in a November 9 post. However, the outlook for GE was bad, pointing out that the financial unit was losing $ 3 billion in cash per year and was facing a scenario of rising interest rates.
White knight
Even if GE is not even a shadow of what it was, society remains big. With a market value of more than $ 70 billion, it would require a large number of investors to save it.
Warren Buffett, which gave GE an emergency loan during the financial crisis of the last decade, comes to mind. A government hand, similar to automatic rescue, is very unlikely.
There is also the possibility of a split and the end of a business icon in the United States. GE has already announced plans to cease operations in the health sector. Its growing aerospace division, described by Culp as a "jewel in the crown", will likely attract interested people or may follow its own path. It is much harder to predict the fate of the besieged unit of energy.
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