By Alwyn Scott
General Electric Co will spin off its health care business and divest its stake in oil services firm Baker Hughes, effectively breaking up the 126-year-old conglomerate which was once the most valuable US corporation and a global symbol of American business power. The slimmed-down company will focus on jet engines, power plants, and renewable energy, which GE hopes will reward battered shareholders who have seen the stock lose more than half its value over the past 20 years.
"This is really the culmination of 10 years of observations I've had about the company," says CEO John Flannery, a GE veteran who took the helm in August with a mandate to revamp the company. "It's a dramatic, sweeping change." Flannery's comments came on a conference call with investors and analysts.
GE says its plan will strengthen its balance sheet by reducing debt, building up cash, and further shrinking GE Capital. Shareholders will receive 80% of the value of GE Healthcare as a tax-free distribution of shares. Following the news, GE shares jumped nearly 7% to $13.63 and were on track for their best day in three years.
Effective Tuesday, GE was dropped from the Dow Jones industrial average, the iconic stock index of which it was a founding member in 1896. The company will spin off the profitable health care unit over the next 12 to 18 months and sell its Baker Hughes stake over two to three years. GE pledged to preserve its 48-cent-a-year dividend until the health care unit is spun off, partially appeasing investors who have expressed concerns about GE's ability to pay it.
The moves, which end a year-long strategic review, mirror changes that analysts had sought a year ago. With the latest moves, GE says its plan to divest $20 billion in assets "is substantially complete," leaving a "simpler and stronger" company that it hopes will boost growth, operating profits, and shareholder returns.
The health care unit spinoff follows rival Siemens AG, which floated its medical business as a separate company, Siemens Healthineers, in March. GE has faced tough competition for medical imaging machines, which include MRI scanners and ultrasound devices, from rivals Philips and Siemens as well as Asian upstarts.
— Source: Reuters