Longstanding US conglomerate General Electric will split into three public companies. The US industrial giant will pursue this move in order to simplify its business. By doing so, it hopes to bring down its debt levels and lift its lethargic share price.
General Electric Was Once America’s Most Valuable Company
The spinoffs mark the breakup of the company founded 129 years ago. It was once a global symbol of American business power. It also once held the spot as the United States’ most valuable company.
Founded in 1892 in Schenectady, New York, the company established its headquarters in Boston. Last year, Fortune 500 ranked GE as the 33rd largest US firm by gross revenue.
Earlier in 2011, GE also ranked as Fortune 20’s 14th most profitable American firm. Because of poor stock performance and declining revenues in the previous years, the Dow Jones Industrial Average removed GE from the index in 2018.
With news of the planned breakup, shares closed 2.6% higher at $111.29. The jump coincided with a less than 1% drop in the S&P 500 index. Since the end of July, GE’s share value rose by 9%, ever since the company reduced shares in circulation.
GE To Spin Off Healthcare and Energy, Then Focus on Aviation
For its restructuring program, General Electric will split its business into energy, healthcare, and aviation. First, the company will spin off the healthcare company by 2023 and retain a 19.9% stake.
Then, it will merge GE Renewable Energy, GE Power, and GE Digital into one business and spin it off by early 2024.
Finally, the remains of the old company will transform into an aviation company. Chief Executive Larry Culp will take the reins of the aviation business, which will also hold all remaining assets and liabilities. Aviation will also manage the company’s runoff insurance business.
General Electric Simplifying Its Business
For now, General Electric will take time to decide on the brand and company names of the new businesses. Culp, who assumed control of the industrial company in 2018, took a massive risk in simplifying the business.
Since taking over the helm, Culp began paring down debt by selling off assets. He also instituted ways to streamline operations and cut overhead costs in order to improve cash flow.
Slowly, Culp’s measures paid off. The company’s balance sheet shows that by the end of this year, around $75 billion was shaved off GE’s outstanding debts.
In addition, the conglomerate now expects to post more than $7 billion in cash by 2023. This will increase once GE monetizes holdings in Baker Hughes, AerCap, and its healthcare unit. Once completed, the company can further reduce its debt to less than $35 billion.
Culp Says No Investor Pressure Behind The Decision
During an interview, Culp said that the decision to spin off some business was a continuation of work fixing the company’s balance sheet.
Doing so will also improve its overall operational performance and help it return to profitability. Culp also added that he does not believe that their plans face regulatory or labor issues.
In addition, stockholders and investors did not exert any influence on their planned breakup.
Watch the CNBC Television video breaking down what the GE spinoff plan means: ‘It makes a lot of sense’
What can you say about the planned breakup of an institution like GE? Is this a sign that old industrial conglomerates are slowly going extinct in favor of tech-driven ones?
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