CHICAGO (REUTERS) - General Electric will split into three public companies as the storied United States industrial conglomerate seeks to simplify its business, pare down debt and breathe life into a battered share price, the company said on Tuesday (Nov 9).
The split marks the end of the 129-year-old conglomerate that was once the most valuable US corporation and a global symbol of American business power.
A founding member of the Dow Jones Industrial Average in 1896, GE spent more than a century in that storied stock index before getting the boot in 2018 following years of sliding valuation.
GE created the first electric cooking range and clothes washer, the first nuclear power plant, and supplied the US space programme. Its interests have spanned television, movies and insurance to light bulbs and locomotives.
GE shares closed 2.6 per cent higher at US$111.29 on Tuesday, after reaching a nearly 3½-year high, compared with a 0.35 per cent drop in the broader S&P 500 index. The industrial conglomerate's shares have gained about 9 per cent since July 30 when the company reduced the number of its traded shares.
GE said the three businesses would focus on energy, healthcare and aviation.
GE will separate the healthcare company, in which it expects to retain a stake of 19.9 per cent, in early 2023. It will combine GE Renewable Energy, GE Power and GE Digital and spin off the business in early 2024.
Following the split, it will become an aviation company, helmed by GE chief executive Larry Culp. The aviation company will inherit GE's other assets and liabilities, including its runoff insurance business.
A company spokesman said brands and names of the spun-off units will be decided later.
It is the boldest attempt under Mr Culp, who took GE's reins in 2018, to simplify the company's business.
In the past three years, Mr Culp has focused on reducing debt by selling assets, and improving cash flows by streamlining operations and cutting overhead costs.
The measures led to an improvement in GE's balance sheet, putting it on track to reduce debt by more than US$75 billion (S$101 billion) by the end of 2021.
The company now expects to generate more than US$7 billion in free cash flow in 2023 and is planning to monetise its stakes in Baker Hughes, AerCap and the healthcare unit to cut its net debt to less than US$35 billion by then.
In an interview with Reuters, Mr Culp said the decision to split the company was paved by GE's progress in terms of repairing its balance sheet and operational performance.
He did not expect the spin-off to face any regulatory or labour issues and said there was no investor pressure behind the decision.
"Spins create a lot of value," he said in the interview. "These are moves geared toward making GE stronger, helping our businesses and the teams perform better."
Mr Culp's strategy is in stark contrast to the path GE pursued in the 1980s and 1990s under Mr Jack Welch, who expanded the company into an industrial behemoth.
However, it has been facing investor scepticism about its ability to turn a corner since the 2008 financial crisis, while struggling with debt. The sagging fortunes prompted the company to fire chief executive John Flannery and hand over the reins to Mr Culp.
The company's revenue for 2020 was US$79.62 billion, a far cry from the US$180 billion-plus in revenue it booked in 2008.
In 2015, activist investor Nelson Peltz took a stake in GE and demanded changes at the company, including moving away from finance operations and towards its industrial roots. On Tuesday, Mr Peltz's company, Trian, said it "enthusiastically supports this important step in the transformation of GE."
GE's aviation business, usually its cash cow, makes jet engines for Boeing and Airbus. Questions remain over how the company will fund the unit's operations, which tend to be very capital-intensive.
The company reckons the aviation unit's low-cost structure, strong order book and investment-grade balance sheet would let it tap capital markets. But some analysts say the unit's valuation could suffer as it will also take over GE's financial liabilities after the split.
An industry source, however, said the aviation business has been distracted until now by propping up the rest of the company, which took a lot of the unit's bandwidth. The unit is expected to be valued at more than US$100 billion after the spin-off, the source added.