GE’s determined makeover plan may dim deal prospects
General Electric Co’s plan to divest $20 billion worth of assets may have bankers excited about contacting potential buyers, breaking off other big chunks of the conglomerate, and creating an M&A bonanza.
GE’s message to dealmakers: Not so fast.
The company is wedded to a plan it outlined Tuesday to sell 20% of its healthcare unit and distribute the other 80% to shareholders through a tax-efficient spinoff, people familiar with management’s thinking said.
Tax concerns make GE wary of entertaining other options for its healthcare business, said the sources, who requested anonymity to discuss sensitive negotiations.
A provision related to the majority stake GE owns in oilservices company Baker Hughes led to the plan it announced on Tuesday to gradually sell the stake down over 2-3 years, they said.
In an interview, GE chief executive officer (CEO) John Flannery would not rule out selling the healthcare unit or the Baker Hughes stake, but said the company intends to have them both trade publicly so GE shareholders can still benefit from future growth.
“Our intention is to take it out as a stand-alone company,”
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Flannery told Reuters when asked if a sale was a possibility. “My world view is there’s no such thing as ruling out any option, but that’s not our intention,
“We want to get these out into shareholders hands where they can grow more quickly.”
GE’s slow-and-steady divestiture plan tracks the approach it has taken under Flannery who took the helm last August.
For instance, when GE announced plans to sell its transportation business to Wabtec in an $11.1 billion last month, it kept a chunk of the business for itself and shareholders.
The company is open to smaller divestitures, and several are in process, including GE’s lighting division, parts of its project finance unit Energy Financial Services, its aerospace parts group Middle River, and its offshore positioning systems unit Converteam.
Those transactions will only generate between $1 billion and $3 billion each, people familiar with the businesses said. Altogether, GE will probably generate another $5 billion or so in cash through more marginal deals.
The most problematic asset GE is trying to sell is its insurance business, which has incurred hefty charges, sparked shareholder lawsuits, and an investigation by US regulators. Insurance liabilities stood at $38 billion at the end of 2017, according to GE’s annual report, though it is unclear how such a deal would be structured or valued, bankers said.