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.
The company’s announcement on Tuesday was the culmination of a tense, years-long transformation into a symbol of American manufacturing power that could signal 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 home appliances, and last year, of light bulbs that GE has been making since the late 19th century, when the company was founded.
The breakup heralds the pinnacle of this effort to carve up an empire created 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, stocks began to lag behind in the summer of 2001, at the waning of Welch’s rule. As the decade drew to a close, GE was nearly broke with the onset of its worst financial crisis since the Great Depression. General Electric’s vulnerabilities were identified, and GE Capital, the company’s financial wing, became the epicenter of this.
Its shares have lost 80% of their value from early 2008 to the first few months of 2009, and have only recently begun to recover as the company unwinds much of what Welch has built. Equities are up nearly 30% this year as asset sales continue to rise.
Boston General Electric Co. closed on Tuesday $ 2.87, or 2.7%, to $ 111.29, a new year high.
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 at GE was well received on Tuesday in both the general markets and 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, Major Stakeholder, Founding Partner which sits on the board of directors of GE. …
William Blair’s Heymann said the conglomerate model no longer works in a market where only the quick and agile survive.
GE Chairman and CEO Larry Culp will become the non-executive chairman of the medical company, and GE will retain 19.9% of the division. Peter Arduini will become President and CEO of GE Healthcare effective January 1st. 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.
GE said Tuesday it expects about $ 2 billion in operating costs associated with the split, which will require board approval.
The company also announced on Tuesday that it expects to reduce its debt by more than $ 75 billion by the end of the year.
The question now is whether other conglomerates will view their company structure as a thing of the past.
The divestiture decision of General Electric, an industry leader, could trigger similar actions in other large conglomerates with a “spur of separation,” according to RBC Capital Markets.
“Today’s announcement by GE may inspire the board of directors of several other multi-industry companies, including Emerson, Roper Technologies and 3M, to take more aggressive steps to simplify their portfolio,” analysts write.
Unlike GE, which continued to lose assets this year, all three industrial conglomerates fell behind the S&P 500 in 2021.
AP business writer Stan Chou contributed to this report from New York City.