America’s best-known industrial conglomerate General Electric (GE) will split into three companies following years of stock underperformance, the company announced today.
The U.S. company will be divided into separate units focused on aviation, health care and energy, with health and energy spinning off in early 2023 and 2024 respectively.
GE shares, which were already up 55 per cent over the last 12 months, jumped more than five percent just two hours into trading.
“By creating three industry-leading, global public companies, each can benefit from greater focus, tailored capital allocation, and strategic flexibility to drive long-term growth and value for customers, investors, and employees,” chief executive Lawrence Culp said in a statement yesterday.
“We are putting our technology expertise, leadership, and global reach to work to better serve our customers.”
The name GE will continue with the aviation company after the breakup, and Culp will continue to lead the unit.
The company said it will use proceeds from the recent sale of its aviation financing unit to pay down debt, with gross debt expected to total less than $65bn by the end of 2021. The spinoffs will cause about $2bn in transaction and operational costs, GE estimated.
The bold move has been praised by most Wall Street analysts. Joseph O’Dea, Wells Fargo analyst, said: “The move does add cost, but nimbleness of three focused companies will likely be viewed as an opportunity set to more than offset any new costs.”
The company has incurred high levels of debt in recent years, and whilst the capital structures of the three new firms will be announced at a later date, Culp has confirmed with investors that the energy segment will have the least amount of debt.
General Electric was co-founded in the late 1800s by Thomas Edison and has gone through a number of transformations over the years, especially since the financial crisis.