GENERAL Electric Co. will drop out of the Dow Jones Industrial Average next week, a milestone in the decline of a firm that once ranked among the mightiest of U.S. blue-chips.
It will be replaced by drugstore retailer Walgreens Boots Alliance , WBA 0.72% the latest sign of the rise of the global consumer economy and the postcrisis boom in debt issuance that has fueled a world-wide deal-making frenzy.
The decision to drop GE, an original member of the Dow that has been a member of the 30-stock index continuously since 1907, marks the latest setback for a firm that once was the most valuable U.S. firm but has been hit hard in recent years by the unraveling of its finance business and competitive problems.
With the departure of GE and the addition of Walgreens, “the DJIA will be more representative of the consumer and health care sectors of the U.S. economy,” said David Blitzer, chairman of the index committee at S&P Dow Jones Indices, the company behind the Dow. “Today’s change to the DJIA will make the index a better measure of the economy and the stock market.”
GE shares have tumbled more than 50% over the past year, erasing more than $100 billion in wealth, as the company has switched leaders, slashed its dividend payment and pursued a restructuring that could result in a breakup of the struggling conglomerate.
“We are focused on executing against the plan we’ve laid out to improve GE’s performance,” a GE spokeswoman said. “Today’s announcement does nothing to change those commitments or our focus in creating in a stronger, simpler GE.”
The company, which in the 1990s was the most valued U.S. company, has shrunk over the years. Under former CEO Jeff Immelt, the company shed its NBCUniversal media business and shrunk its GE Capital arm, which was once of the biggest U.S. lenders.
More recently, the Boston-based company struck a deal to sell its century-old railroad business, part of a plan to shed $20 billion worth of assets by the end of next year. It is also looking to sell its century-old lighting business.
Investors are waiting for a major portfolio update from CEO John Flannery, who took over last summer and continues to preach that “everything is on the table.” Mr. Flannery has also been slashing jobs and cutting costs as GE struggles with slack sales in its big Power business, which sells turbines for power plants.
GE’s decline has left it with a market value of $113 billion, but it wasn’t the smallest industrial in the venerable index. GE’s market cap and annual revenue are still larger than Dow member United Technologies Corp. , which manufacturers Otis elevators and Pratt & Whitney jet engines.
GE’s market capitalization is still nearly twice as large as Walgreens’ valuation, though the two companies are about equal in terms of annual revenue. Walgreens, which dates back to 1901, has expanded in recent years by merging with European drug wholesaler Alliance Boots and buying up stores from rival Rite Aid Corp.
Walgreens ended Tuesday’s session with a market value of $64 billion. It joins the index even though its larger drugstore rival CVS Health Corp. isn’t a member. CVS is in the process of buying health insurer Aetna Inc.
Component stocks of the Dow are selected by the index committee, a group that includes editors of The Wall Street Journal, which is published by Dow Jones & Co., a part of News Corp .
In 2015, the committee added Apple Inc. in place of AT&T Inc., which recently swallowed Time Warner Inc. The index has dropped several industrial members over the years, including Alcoa Inc. in 2013 and General Motors in 2009 after its bankruptcy filing.
The shake-up won’t affect the value of the Dow, which fell 1.15% Tuesday and is down 0.1% this year. The index has surged to dozens of records in the past several years, most recently in January. - WSJ
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