GE is busting the conglomerate by its own accord


Jakob Eiseman, Editor-in-Chief

Header Image: Financial Times

The General Electric Company (GE) is one of the largest, most diversified conglomerates in American history. The Boston-based organization creates a vast network of electronic products and pumps mass amounts of cash directly into the American technological research pool year after year.

It was announced Tuesday that GE has a plan to spin off parts of its mass network into three separate, public companies by 2024. In a press release, the company detailed its plan to peel off all parts of GE that do not relate to aviation or flight, and combine them appropriately to create three global organizations: GE Healthcare, GE Power, Renewable Energy and Digital, and GE. The press release notes that GE Healthcare will be the first of these companies to go public through a tax-free process that would allow all healthcare related divisions of GE to split off and become independent by 2023. 

The next step of the process will be to combine GE Renewable Energy, GE Power and GE Digital into one business with a focus on leading America’s transition to renewable energy. Once combined, these divisions will share resources and be placed under a single banner within GE. Again, using the same tax-free process as GE Healthcare, this new umbrella will spin-off into a public, global company by 2024. 

GE prime is expected to maintain around 20 percent of GE Healthcare, and the same can be assumed about GE’s energy branch, although future proceedings of the umbrella group will determine the exact amount. According to GE, the reason for this major schism is that once all three companies are independent they “will be better positioned to deliver long-term growth and create value for customers, investors, and employees.”

Current GE CEO H. Lawrence Culp Jr. said in a statement “The world demands—and deserves—we bring our best to solve the biggest challenges in flight, healthcare, and energy. 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.” 

Culp Jr. will continue to serve as CEO to GE and will take on the role of chairman to GE Healthcare when it is created. Once the GE energy company is spun off, Culp Jr. says he will focus solely on GE’s aviation efforts, but it is ambiguous whether he or colleague John Slattery will be named CEO of GE Aviation. Following the full transition, Peter Arduini will become the CEO of GE Healthcare and Scott Strazik will sit as CEO of the GE energy company.

The conglomerate noted that some of the factors that contributed to this decision and their support of it is a $75 billion reduction in debt since 2018 and risk reduction provided by their $9.4 billion in capital raised through investment portfolio changes, improvements to claims management and insurance premium increases since 2018.

What is notable about this transition is that GE, a company with an annual operating income upwards of $2.5 billion, according to the Wall Street Journal, is expected to incur a $2 billion dollar cost of transition, which includes all physical transitions such as offices, housing, and brand development, as well as contractual and legal transitions. It is also expected to pay out about half of a billion dollars to the federal and Massachusetts state government in taxes. As this plan is set to cross the finish line by 2024, that means that all three GE branches will effectively wipe out one year of the operational budget to make this transition a reality.

Shares of GE rose by more than 6 percent in early trading on Tuesday, maxing out around $115.01 as a result of these announcements, but at the time of writing this, one share in GE is currently valued at $111.29, around $5 higher than it was at this time one week prior.