GE, an industrial conglomerate pioneer, to break up
General Electric Co will split into three public companies as the US industrial conglomerate seeks to simplify its business, pare down debt and breathe life into a battered share price, the company said on Tuesday.
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.
GE shares closed 2.6 percent higher at US$111.29 on Tuesday, after reaching a nearly three and a half years high, compared with a 0.35 percent drop in the broader S&P 500 index. The industrial conglomerate's shares have gained about 9 percent since July 30 when the company reduced the number of its traded shares.
In the past three years, GE Chief Executive Larry Culp has focused on reducing debt by selling assets, and improving cash flows by streamlining operations and cutting overhead costs.
"With the progress on the deleveraging, the progress with our operational transformation, the pandemic lifting ... there's no reason to wait a day (for the split)," Culp said. "It's the right thing to do."
The Boston-based company 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 percent, 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 Culp. The aviation company will inherit GE's other assets and liabilities, including its runoff insurance business.
A company spokesperson said brands and names of the spun-off units will be decided later.
It is the boldest attempt under Culp, who took GE's reins in 2018, to simplify the company's business. Measures taken so far have led to an improvement in GE's balance sheet, putting it on track to reduce debt by more than US$75 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 monetize its stakes in Baker Hughes, AerCap and the healthcare unit to cut its net debt to less than US$35 billion by then.
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 spinoff to face any regulatory or labor issues and said there was no investor pressure behind the decision.
"Spins create a lot of value," he said. "These are moves geared toward making GE stronger, helping our businesses and the teams perform better."
Culp's strategy is in stark contrast to the path GE pursued in the 1980s and 1990s under Jack Welch, who expanded the company into an industrial behemoth.