General Electric plans to divide itself into three businesses focused on healthcare, energy and aviation, a process its leaders expect will take two and a half years. The moves will essentially end the long-running conglomerate strategy that as recently as a decade ago had GE owning large interests in media, transportation, appliances, lighting and finance businesses and annual revenues of $150 billion.
GE executives have sketched out the following plan to separate its businesses and leave GE proper focused on aviation:
• In early 2023, they will look to spin off GE Healthcare while retaining a stake of 19.9 percent. Through the first nine months of 2021, GE Healthcare produced a profit of $2.2 billion on $13.1 billion in revenues.
• About a year later, the company will look to do the same with the combination of GE Renewable Energy, GE Power and GE Digital. Combined, the energy and power divisions posted a loss of $68 million on revenues of $23.7 billion in the first three quarters of this year, with losses from renewables more than offsetting power profits. (GE has been including its digital business in its corporate segment.)
“Our teams have done exceptional work strengthening our financial position and operating performance, all while deepening our culture of continuous improvement and lean. And we’re not finished,” Chairman and CEO Larry Culp said in a statement. “We have a responsibility to move with speed to shape the future of flight, deliver precision health, and lead the energy transition. The momentum we have built puts us in a position of strength to take this exciting next step in GE’s transformation and realize the full potential of each of our businesses.”
CNBC’s David Faber said Culp told him customers have been telling him they want a leaner/broken up GE so that each business can be more focused. The news also isn’t a massive surprise since GE has been streamlining for several years, most recently by selling its capital aviation services unit to AerCap Holdings for about $30 billion. Word of the separation plan comes just a few weeks after Culp told analysts and investors that his team had recently wrapped a broad strategic review. Pointing out that the company has shed $75 billion in debt in recent years and pushed through operational improvements, Culp said on a conference call that GE was ready to “think about playing more offense” in terms of both organic growth and M&A.
Investors appear to like the look of the plan Culp and his team – which will come with an expected $2 billion in costs – have laid out: Shares of GE (Ticker: GE) were up more than 5% in morning trading – they had popped some 15% in pre-market trading – and are now changing hands at their highest level since May, which also is in line with its spring 2018 top.
Analyst Nick Heymann said on Yahoo! Finance that the deal “really highlights that GE’s back” and that Culp – who will continue to run the core GE business – is likely to sell off its various equity stakes, including in AerCap and GE Healthcare, to further lower its debt levels and fund aviation growth projects.
