General Electric Dropped a Bombshell. It Will Split Into Three Firms.
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‘s years-long transformation is taking another huge step forward.
On Tuesday, the company announced plans to split into three companies: One focused on healthcare, another devoted to energy and power, and the third dealing with aviation.
Investors were happy with the news. General Electric (ticker: GE) stock shot up more than 16% in premarket trading to about $126 a share, though it later slipped back to roughly $114, for a gain of 5%. The
was flat and the
Dow Jones Industrial Average
dropped about 0.3%.
The heathcare spinoff is slated for 2023, and GE plans to retain a 19.9% stake. The spinoff of the power business is planned for 2024.
“It is a wow sort of day,” GE CEO Larry Culp told Barron’s. “Greater focus and accountability will come from this structure.” He sees benefits from the move in terms of capital allocation and talent retention in each business, as well as gains for GE’s customers.
Down the road, all three companies are targeting investment-grade credit ratings. “We’ll continue our deleveraging,” said Culp, adding the credit-rating firms are viewing the transactions favorably.
Even before Tuesday, GE already had changed a lot since Culp—the first CEO named from outside the company in GE’s history—took over in late 2018. The company has sold billions in assets: In early 2019, a few months after Culp took over, GE announced the sale of its biopharma division to
(DHR) for about $21 billion. GE just completed the sale of its aircraft leasing unit to
(AER), bringing in about $30 billion.
Those deals and others, along with internally generated cash flow, have allowed GE to pay back roughly $75 billion in debt. GE Capital, the company’s lending arm, which once had hundreds of billions of dollars in assets and liabilities, has shrunken so much that GE plans to stop separately disclosing its financial results.
“When I think about the coming two years compared with the past three years, this team can handle it,” said Culp.
As of the close of trading on Monday, GE stock was up about 25% year to date, similar to the gain of the S&P 500.
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