General Electric Co. inked the first deal to move itself away from banking -- by selling its private-equity-lending unit to Canada’s largest pension fund in a deal valued at about $12 billion.

It's the first piece of GE Capital Corp., the industrial conglomerate's finance arm, that the parent company has sold since announcing plans to exit the business in April. Investors offered the company modest applause for its deal, sending the stock up 0.3% on a day when broader markets were down.

GE Capital was at the epicenter of the storm after Lehman Brothers Holdings Inc. declared bankruptcy in September 2008. GE ultimately became one of the largest recipients of the federal government's lifelines during the financial crisis.

Here's a look at how GE's business has changed since then:

2008: To survive the financial crisis, GE froze its dividend, suspended its share-buyback program, scaled back its finance unit and made moves to reduce its reliance on short-term borrowing. It raised $15 billion by selling $12 billion in new shares and offering $3 billion of preferred stock to Warren Buffett‘s Berkshire Hathaway Inc.

2009: Mr. Immelt continued to scale back the company, announcing a deal with Comcast, which would give Comcast majority control of NBC Universal.

2010: GE made several big (and what now look like ill-timed) bets on oil, including the announcement of a $3 billion deal to buy Dallas-based oil-and-gas equipment maker Dresser Inc. and a $1.25 billion deal to acquire U.K.’s Wellstream Holdings PLC, a bet on deep-water oil exploration.

2011: GE paid back Mr. Buffett and continued its acquisitions of oil and gas assets, announcing a deal to buy the well-support division of John Wood PLC, which makes submersible electric pumps that help extract oil, for $2.8 billion.

2013: Mr. Immelt paid $3.3 billion for Lufkin Industries Inc., a drilling-equipment maker positioned to benefit from North American shale drilling. GE also acquired Italian aviation supplier Avio SpA for $4.3 billion.

The conglomerate raised $18.1 billion by selling off its remaining stake in NBC Universal and 30 Rockefeller Center to Comcast Corp.

2014: GE sold off the electric toaster, self-cleaning ovens and other appliances it helped create to Sweden-based Electrolux AB for $3.3 billion, but the appliances still hold the GE name. Mr. Immelt also inked a $17 billion deal to buy Alstom‘s power-generation business, the company’s largest acquisition ever. The Alstom deal has not yet closed.

GE began the process of spinning off its consumer credit operation into a new stand-alone business, Synchrony Financial, through an initial public offering.

2015: GE said earlier this year that it would sell off $100 billion in assets in 2015.

What GE experienced illustrates how important working capital management to the firms’ financial position and risk.

In order to meet their working capital needs, companies have the option to hold cash or hold on to a line of credit.

Question:

1. Evaluate whether you would recommend companies to hold cash or to rely on the line of credit. Why or why not.

2. Would you make different recommendations for different types of firms?

3. What implications does liquidity management have on your recommendation?

4. Find news examples and evidences to support your position.

Answer rating: 100% (QA)

Answer 1EVALUATE WHETHER YOU WOULD RECOMMEND COMPANIES TO HOLD CASH OR TO RELY ON THE LINE OF CREDIT ... View the full answer