General Electric, a prominent American manufacturer that has struggled under its own weight after becoming a sprawling conglomerate, will split into three public companies focused on aviation, healthcare and energy.
It is the culmination of a difficult, years-long restructuring of the symbol of American manufacturing power that could spell the end of conglomerates altogether.
“It’s over now,” said Nick Heymann of William Blair, who has followed GE for years. “There is no room for that in the digital economy.”
The company has already gotten rid of products familiar to most Americans, including last year’s home appliances and light bulbs, which GE has been making since the late 19th century, when the company was founded.
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Tuesday’s announcement heralds the pinnacle of this effort to carve up an empire built in the 1980s under the leadership of Jack Welch, one of America’s early “superstars”.
GE stock has become one of the most popular on Wall Street under Welch, consistently outperforming competitors and the market at large. During the 1990s, it brought in 1120.6% of investments. During Welch’s tenure, GE’s revenue grew almost fivefold, and the company’s value rose 30fold.
However, in the summer of 2001, at the waning of Welch’s reign, stocks began to lag, and by the end of the decade, with the worst financial crisis since the Great Depression, GE collapsed. General Electric’s vulnerabilities were identified, and GE Capital, the company’s financial wing, became the epicenter of this.
The stock has lost 80% of its value since early 2008 in the first few months of 2009 and has only recently begun to recover as the company spins much of what Welch has built. The shares have already surged 30% this year as asset sales continue to climb, and they rallied 6% during strong trading on Tuesday, hitting a new high in a year.
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GE’s aviation division, which is the most profitable, will retain the General Electric name. GE will spin off its healthcare business in early 2023 and its energy segment, including renewables, electricity, and digital operations, in early 2024.
The split decision was well received on Tuesday by those pushing for the change.
“The strategic rationale is clear: three well-capitalized, industry-leading public companies, each with deeper operational focus and accountability, greater strategic flexibility and customized capital allocation decisions,” writes Trian Fund Management, a major stakeholder whose founding partner serves on the GE Board of Directors. “We applaud GE CEO Larry Culp and his team for their efforts to deliver long-term shareholder value.”
William Blair’s Heymann said the conglomerate model no longer works in a market where only the quick and agile survive.
Culp will become the non-executive chairman of the medical company, and GE will retain 19.9% of the shares in the division. Peter Arduini will become President and CEO of GE Healthcare effective January 1, 2022. Scott Strazik will become CEO of the combined renewable energy, electricity and digital business. Culp will lead the aviation business with John Slattery, who will remain its CEO.
Culp reached a milestone in the transformation of General Electric this year with a $ 30 billion deal to merge GE’s aircraft leasing business with Ireland’s AerCap Holdings. As the deal pushed GE Capital Aviation Services into a separate business, Culp effectively shut down the books of GE Capital, the finance arm that nearly killed the entire company during the 2008 financial crisis.
The company said Tuesday it expects about $ 2 billion in operating expenses related to the split, which will require board approval.
The Boston-based company also announced on Tuesday that it expects to reduce its debt by more than $ 75 billion by the end of the year.
Business writer Stan Chou contributed to this report from New York City.