https://www.wsj.com/articles/walgreens-to-replace-ge-in-dow-industrials-1529443336

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GE Drops Out of the Dow After More Than a Century

General Electric is being replaced by Walgreens Boots Alliance, in the latest setback for a troubled conglomerate that once had highest market value of any U.S. corporation

The colored bands represent the lowest-weighted Dow stock. The fever line shows its market capitalization.

The colored bands represent the lowest-weighted Dow stock. The fever line shows its market capitalization.

By Michael Wursthorn and Thomas Gryta

Updated June 19, 2018 6:34 p.m. ET

234 COMMENTS

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 blue-chips and was a pillar of the U.S. economy.

It will be replaced by drugstore retailer Walgreens Boots Alliance Inc., the latest sign of the rise of the global consumer economy and the postcrisis boom in debt issuance that has fueled a worldwide deal-making frenzy.

The decision to drop GE, an original member of the Dow that has been a part of the 30-stock index continuously since 1907, marks the latest setback for a company 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 55% over the past 52 weeks, 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. It is the cheapest stock of all 30 Dow components.

Falling Fortunes

Share and index performance

Source: SIX

%

General Electric Co.

Dow Jones Industrial Average

2016

’17

’18

-75

-50

-25

0

25

50

75

“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 a stronger, simpler GE.”

Shares of GE fell 1.4% in after hours trading. While investors don’t expect the company’s departure from the Dow to be a long-term drag on its share price, some said its exit was a potent symbol of how far the company’s elevated status in the U.S. economy has fallen.

“I think it tells you that GE no longer qualifies as one of the most important companies in our country,” said Michael Farr, president of investment management firm Farr, Miller & Washington. “In a technology driven world, it has been challenging for manufacturing companies to remain relevant.”

GE’s market capitalization peaked at $594 billion in 2000, making it the most valued U.S. company. It has shrunk over the years. Under former CEO Jeff Immelt, the company shed its NBCUniversal media business and sold off most of its GE Capital arm, which was once one 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.

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GE shares have tumbled 55% over the past 52 weeks, erasing more than $100 billion in wealth. Shown, the New York Stock Exchange.

GE shares have tumbled 55% over the past 52 weeks, erasing more than $100 billion in wealth. Shown, the New York Stock Exchange. PHOTO: SPENCER PLATT/GETTY IMAGES

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. Walgreens has taken on debt as part of its growth through acquisition strategy: the company’s long-term debt has increased to $12.5 billion as of February from $3.7 billion in August 2013, according to its SEC filings.

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 .

Walgreens has expanded in recent years by merging with European drug wholesaler Boots Alliance and buying up stores from rival Rite Aid.

Walgreens has expanded in recent years by merging with European drug wholesaler Boots Alliance and buying up stores from rival Rite Aid. PHOTO: CHRISTOPHER LEE/BLOOMBERG NEWS

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.

The change in the Dow’s composition is unlikely to lead to an immediate shift in investor behavior. About $29.5 billion of mutual and exchange-traded funds track the Dow Industrials, a fraction of the $9.9 trillion in assets linked to the S&P 500 index through the end of 2017, according to data provided by S&P Dow Jones Indices.

—Akane Otani contributed to this article.

Write to Michael Wursthorn at Michael.Wursthorn@wsj.com and Thomas Gryta at thomas.gryta@wsj.com

(http://www.autoadmit.com/thread.php?thread_id=4005880&forum_id=2#36277470)