By Abhijith Ganapavaram and Rajesh Kumar Singh
BANGALORE, India (Reuters) – General Electric (GE) announced on Tuesday that it will split into three publicly traded companies in a strategy to streamline its business, reduce debt and boost share value.
The division will mark the end of the 129-year-old conglomerate that was once the most valuable corporation in the United States and a global symbol of American business power.
GE shares were up about 3.5 percent by 3:45 pm, while the S&P 500 index was down 0.5 percent. The shares of the industrial conglomerate have appreciated around 9% since July 30, when it completed a stock split at a ratio of 1 to 8 shares.
GE said the three businesses will focus on energy, healthcare and aviation. The company will combine GE Renewable Energy, GE Power and GE Digital and will spin off the area in early 2024.
GE will also separate the healthcare company from the group, in which it expects to retain a 19.9% stake, by early 2023. After the split, GE will become a company focused on the aviation market, headed by the chief executive current, Larry Culp.
A GE spokesman said the brands and names of the spun off units will be decided in the future.
Culp has focused on reducing debt and improving cash flows by streamlining the group’s operations, cutting overhead costs and charging customers faster.
The measures have led to an improvement in GE’s balance sheet, putting the company on track to reduce debt by more than $75 billion by the end of 2021.
The company now expects to generate more than $7 billion in free cash flow by 2023 and is planning to monetize its stakes in Baker Hughes, AerCap and the healthcare facility to reduce net debt to less than $35 billion by then.
In an interview with Reuters, Culp said the decision to split the company was paved by GE’s progress in terms of recovering its balance sheet and operating performance.
He doesn’t expect the separate companies to face any regulatory or labor issues and said investor pressure had no bearing on the decision to split the group.
“Spin-offs create a lot of value,” he said in the interview. “These are actions aimed at making GE stronger, helping our businesses and teams perform better.”
INDUSTRIAL STRENGTH
Culp’s strategy stands in stark contrast to the path GE took in the 1980s and 1990s under Jack Welch, who turned the company into an industrial giant.
A founding member of Dow Jones Industrial in 1896, GE spent more than a century in the index portfolio before being delisted in 2018 after years of falling market value.
The company created the first electric washing machine, the first nuclear power plant and was a supplier to the American space program. GE’s holdings included businesses ranging from television, film and insurance to light bulbs and locomotives.
However, the company has faced investor skepticism about its ability to turn around its business since the 2018 international financial crisis.
GE’s revenue in 2020 totaled $79.6 billion, far from the more than $180 billion in 2008.
In 2015, activist investor Nelson Peltz took a stake in GE and demanded changes in the company, including the group’s exit from the financial sector to focus on its industrial origins.
Peltz’s company Trian “enthusiastically supports this important step in GE’s transformation,” the company said on Tuesday.
GE’s aviation businesses, usually the ones that generate the most resources for the company, produce engines for Boeing and Airbus aircraft. It was not immediately clear how the company will finance the unit’s operations, which tend to be capital intensive.
GE is expected to assume a $2 billion impact related to separation expenses and costs and tax costs of less than $500 million.
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