General Electric
‘s years-long transformation is taking another huge step forward.
The company announced Tuesday plans to split into three companies: One focused on healthcare, another focused on energy and power and the third focused on aviation.
Investors are happy with the news. General Electric (ticker: GE) stock was up more than 16% higher in premarket trading at about $126 a share. S&P 500 and Dow Jones Industrial Average futures were flat.
The heathcare spin is slated for 2023 and GE plans to retain a 19.9% stake. The power spin is slated 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 capital allocation, talent retention in each business as well as benefits 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 agencies are viewing the transactions favorable.
Coming into 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 began as CEO, GE announced the sale of its biopharma division to Danaher (DHR) for about $21 billion. And GE just just completed the sale of its aircraft leasing unit to AerCap (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, shrinking GE Capital—the company’s lending arm—down to a size that is no longer a reportable segment.
That was then. The coming transformation will happen over the coming two years. “When I think about the coming two years compared with the past three years, this team can handle it,” said Culp.
GE will host a conference call beginning at 8:15 a.m. Eastern time so investors and analysts can ask questions about the coming spins and ongoing transformation.
Coming into Tuesday, GE stock was up about 25% year to date, similar to the gain of the S&P 500.
Write to Al Root at [email protected]
