this makes you wonder how long the GE decision was known..
>>December 4, 2000
3M Hires G.E. Executive as New C.E.O.
By CLAUDIA H. DEUTSCH
For the first time, the Minnesota Mining and Manufacturing Company has reached outside its own ranks for a new chief executive, hiring W. James McNerney Jr. from the General Electric Company to be its new chairman and chief executive.
The appointment, which 3M is expected to announce Tuesday, held little shock value on Wall Street. Livio D. DeSimone, 3M's chairman since 1991, will turn 65 in July, and 3M's board has been seeking a replacement for several months. Although six 3M insiders were said to be on the short list of candidates, analysts had speculated that the company would go outside.
That speculation hit fever pitch last week, when G.E. ended its own much publicized succession race. G.E. named Jeffrey R. Immelt to succeed John F. Welch Jr. as chief executive when Mr. Welch retires next year. Mr. Welch, in making that announcement, said he expected the also-rans in that contest to be quickly spirited away to head other companies. Mr. McNerney, 51, head of GE Aircraft Engines, was one of them; the other, Robert L. Nardelli, 52, head of GE Power Systems, is expected to announce a new job this week.
Analysts say 3M could use an infusion of G.E. dynamism. "3M has good margins and a good product line that is getting better, but they need an injection of intensity," said Jack L. Kelly, who follows 3M for Goldman, Sachs. "G.E. has an in-your-face, perform-or-you're-out culture, and anyone who flourished in that culture will know how to raise the bar for performance at 3M."
Actually, 3M has reinvigorated itself of late. Until the middle of last year, the company was floundering badly. It had missed earnings estimates in three of six quarters, it was suffering from the economic downturn in Asia, and many of its products were selling in highly cyclical industries like construction.
Since mid-1999, though, the company, which is based in St. Paul, has slashed costs, and shifted its focus to high-growth markets. Products like fiber optics, abrasives used in the manufacture of semiconductors and drugs that bolster immune systems already comprise about 23 percent of its sales, and 3M has promised to raise that percentage to 35 percent by 2003. In September, Mr. DeSimone told analysts that 3M's earnings would grow at least 12 percent a year through 2003.
The company's stock has held its own through the market's gyrations. Although 3M has tried mightily to position itself as a high-tech stock, it has generally traded in line with makers of specialty chemicals.
That old-economy identification is helping it now. Since 3M's shares never rode the technology wave up, they did not ride it down. Moreover, G.E.'s $45 billion acquisition of Honeywell in October gave a boost to many old-economy stocks, as analysts predicted further consolidations of old-line manufacturers.
Shares of 3M, which entered 1999 trading around $70, closed up $5.38 today at $105.
Still, 3M has its critics. For example, it is only a small player in pharmaceuticals, and analysts say that it must either beef that business up with acquisitions, or divest it and concentrate on fiber optics.
Analysts say the need to make such moves might have spurred 3M's board to go outside for a new chief. The six inside contenders for 3M's top spot had each clocked three or more decades with the company, and analysts say they might well have been unwilling to rock a boat they've sailed in for so long.
"The company needs to get out of a status quo rut and look at new strategic opportunities, and that means they need someone who is not wedded to the 3M world," said Peter J. Enderlin, an analyst who follows 3M for Ryan, Beck Southeast Research.
In his 18 years with G.E., Mr. McNerney certainly demonstrated his ability to deal with change. He has run GE Aircraft Engines, GE Lighting and GE Asia-Pacific, which handled most of G.E.'s activities in Asia. He also did stints at GE Capital and GE Information Services.
"He's got the broadest repertoire of any executive I can think of, and he'll be terrific for 3M," said Dayton Ogden, co-chairman of the executive search firm Spencer Stuart.
The company seems a good fit for him, too. Like G.E., 3M is a diversified manufacturer, with more than 50,000 products selling to a host of unrelated industries. Also like G.E., 3M executives are impatient with bureaucracy. Indeed, 3M will often split a business in two when it seems to be growing too big to react quickly to the market.
"3M has been gaining momentum in fast growing markets," said Richard Friedman, an analyst with Standard & Poor's. "McNerney's challenge will be to keep that momentum going." |
