Storied General Electric to split into 3 public companies

5

General Electric, once one of the most widely held stocks in America by individual investors, will divide itself into three public firms focused on aviation, health care and energy.

Founded in 1892 in part by storied inventor Thomas Edison, GE never fully recovered from the heavy damage it suffered during the financial crisis more than a decade ago. The last of the original members of the Dow Jones Industrial Average, it was removed from the index in 2018.

GE refashioned itself in recent years from the sprawling conglomerate created by Jack Welch in the 1980s to a much smaller and focused entity. 

With its announcement Tuesday that it will spin off its health care business in early 2023 and its energy segment, including renewable energy, power and digital operations in early 2024, General Electric may have signaled the end of the conglomerate era.

“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,” Chairman and CEO Lawrence Culp Jr. said in a prepared statement.

Culp will become nonexecutive chairman of the health care company. Peter Arduini will serve as president and CEO of GE Healthcare effective January 1, 2022. Scott Strazik will become CEO of the combined renewable energy, power and digital business. Culp will also lead the aviation business along with John Slattery, who will remain its CEO.

The company will maintain a 19.9% stake in the health care unit.

Aviation is the most profitable part of GE's business. The company produces jet engines, aerospace systems, replacement parts and maintenance services for commercial, executive and military aircraft including fighters, bombers, tankers and helicopters.

Unbridled growth

The company has spent years undoing its massive transformation under Jack Welch, an era of unbridled growth that gave birth to a sprawling conglomerate in the 1980s and 1990s. From lightbulbs to appliances or health care to financial services, General Electric had a hand in it.

During the late-1990s boom, GE's soaring stock price made it the most valuable company in the world. GE's revenue grew nearly fivefold during Welch's tenure, and the firm's market capitalization increased 30-fold.

However, the financial crises of 2007-2008 revealed how exposed GE was to risk, particularly through its financial division.

In 2015, GE announced a radical transformation of the company, vowing to shed billions in assets to better focus on the company's industrial core, namely power, aviation, renewable energy and health care. That led to some tumult in leadership.

CEO Jeff Immelt was replaced by John Flannery in 2017. Flannery was ousted just a year later with Culp taking over and vowing a massive corporate transformation.

The company said Tuesday that it expects operational costs of approximately $2 billion related to the split, which will require board approval.

Boston-based GE also announced Tuesday that it expects to lower its debt by more than $75 billion by the end of the year.

Shares jumped almost 6% in mid-morning trading.

View original post