Troubled GE drops out of Dow Jones for first time in 110 years
20 Jun 2018
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General Electric (GE), the last original member of the Dow Jones Industrial Average, will be dropped from the blue-chip index for the first time in 110 years in a move that reflects its declining fortunes and a changing US economy.
Drugstore chain Walgreens Boots Alliance will take its spot on the financial index, which tracks shares of 30 companies deemed representative of the US economy. The change takes effect on 26 June.
David Blitzer of S&P Dow Jones Indices, which runs the index, said the change would make the Dow a "better measure of the economy and the stock market". The firm said the change was intended to reflect the growth of the healthcare sector.
The Tuesday night decision was a fresh blow to General Electric, the iconic maker of light bulbs and jet engines, which has stumbled badly in recent years.
Last year, John L Flannery, the company’s new chief executive, warned that the power-generation unit was reeling. GE cut its dividend for only the second time since the Great Depression. In January, GE surprised investors by taking a big charge and setting aside $15 billion over seven years to pay for obligations held by GE Capital, the company’s financial services unit, mainly on long-term care insurance policies.
Over the last year, GE’s shares have fallen 55 per cent, compared with a 15 per cent gain for the Dow. GE, which closed on Tuesday at $12.95, has the lowest share price of any of the index’s 30 components.
Dow Jones Indices suggested that the slide in GE’s stock price contributed to the decision to remove the company from the index, of which it had been a member continuously since 7 November 1907.
“The low price of GE shares means the company has a weight in the index of less than one-half of one percentage point,” Blitzer, chairman of the index committee at S&P Dow Jones Indices, said. “Walgreens Boots Alliance’s share price is higher, and it will contribute more meaningfully to the index.”
Following GE’s departure from the index, the company with the longest presence in the Dow will be Exxon Mobil, whose corporate predecessor, Standard Oil of New Jersey, joined the Dow in 1928, according to S&P Dow Jones Indices. Alphabet, Amazon, Apple, Facebook and Microsoft are the five most valuable companies in the US today.
GE said falling out of the Dow would not alter its commitment to creating a "stronger, simpler" company.
One of the original companies included on the Dow, GE traces its roots to Thomas Alva Edison's light bulb business founded in the 1890s. It went on to become one of America's biggest companies - an industrial conglomerate that also owned the NBC Universal media company and operated a major finance division.
Over the last decade, the firm has sold businesses including NBC, GE Capital and its appliances division, responding to losses triggered by the financial crisis and poor performance against competitors.
GE, which employs about 300,000 people globally, is seeking to offload its lightbulb business and last month sold its railroad division.
The committee that oversees the Dow, which is run by a division of S&P Global, reviews the composition of the index regularly. It replaced AT&T with Apple in 2015.
Walgreens, founded as a neighbourhood pharmacy in 1901, has been rapidly expanding in recent years. In 2012 it bought a stake in Alliance Boots and took full control two years later. The Illinois-based firm also acquired more than 1,900 stores from Rite-Aid last year.
