GE Stock Rises as Plans Reveal Separation Into 3 Separate Companies — What To Expect by 2024
General Electric (GE) has plans to split into three companies focused on the growth sectors of aviation, healthcare and energy, the company announced today, which immediately sent the stock rising.
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“This is a defining moment for GE, building on the significant momentum from our strengthened financial position and operating performance,” the company said in a statement.
The stock was up 8% in pre-market trading and up 5% by mid-day.
GE said it will pursue a tax-free spin-off of GE Healthcare, “creating a pure-play company at the center of precision health.” In addition, it will combine GE Renewable Energy, GE Power and GE Digital into one business, positioned to lead the energy transition. GE intends to execute the spin-off of Healthcare in early 2023 and the spin-off of the Renewable Energy and Power business in early 2024. Following these transactions, GE will be an aviation-focused company, “shaping the future of flight.”
Dev Randhawa, founder and Chairman of Fission 3.0, told GOBankingRates that “the markets love the idea of GE splitting into three,” as the stock was instantly up. “One of the three companies will be focused on energy which includes renewables. With the Biden administration pushing hard on its clean energy initiatives, the energy GE spin-off will be in a strong position to benefit from it. In order to move to low carbon economy, I hope GE does invest in clean air and nuclear energy as Bill Gates and Rolls Royce have. Renewables will never be enough, as the world’s thirst for electricity continues with EVs and crypto,” he added.
As independently run companies, the businesses will be better positioned to deliver long-term growth and create value for customers, investors and employees, the company said.
Following the announcement, CFRA Research said it maintained a “Hold” opinion on GE, according to a research note sent to GOBankingRates.
“The separations don’t come as a shock, as GE has been divesting businesses for years in efforts to reduce its overleveraged balance sheet,” CFRA analysts said in the note. “No plans on post-spin capital structures have been provided yet, but we would not be surprised if the spin-offs are saddled with disproportionate amounts of GE’s current debt, as is often the case with these types of restructurings, in our view.”
CFRA analysts added that they see some value creation through separating the energy businesses, which in aggregate have been shrinking and losing money both before and since the pandemic. “We think taking the energy losses out of the equation and reducing leverage for aviation can create some value for shareholders vs. status quo. But with the energy separation not planned until 2024, it does not impact our 12-month price target,” the analysts wrote.
GE said in an investor conference that Larry Culp will serve as non-executive chairman of the GE healthcare company upon its spin-off, and will continue to serve as chairman and CEO of GE until the second spin-off. At that point, he will lead the GE aviation-focused company going forward. Peter Arduini will assume the role of president and CEO of GE Healthcare effective January 1, 2022. Scott Strazik will be the CEO of the combined Renewable Energy, Power and Digital business while John Slattery continues as CEO of Aviation.
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