GE to spin off healthcare unit
NEW YORK: General Electric Co (GE) said yesterday it will spin off its healthcare business and divest its stake in oil-services firm Baker Hughes, effectively breaking up the 126-year-old conglomerate which was once the most valuable United States corporation and a global symbol of American business power.
The slimmed-down company will focus on jet engines, power plants and renewable energy, which GE hopes will reward battered shareholders who have seen the stock lose more than half its value over the past 20 years.
“This is really the culmination of 10 years of observations I’ve had about the company,” said chief executive officer John Flannery, a GE veteran who took the helm in August with a mandate to revamp the company. “It’s a dramatic, sweeping change.” Flannery’s comments came on a conference call with investors and analysts.
GE said its plan will strengthen its balance sheet by reducing debt, building up cash and further shrinking GE Capital. Shareholders will receive 80 per cent of the value of GE Healthcare as a tax-free distribution of shares.
GE shares jumped eight per cent to US$13.76 (RM55.43) and were on track for their best day in three years.
Effective yesterday, GE was booted from the Dow Jones industrial average, the iconic stock index of which it was a founding member in 1896.
The company will spin off the profitable healthcare unit over the next 12 to 18 months, and sell its Baker Hughes stake over two to three years.
GE pledged to preserve its 48cent-a-year dividend until the healthcare unit is spun off, partially appeasing investors who have expressed concerns about GE’s ability to pay it.
The moves, which end a yearlong strategic review, mirror changes that analysts had sought a year ago.
With the latest moves, GE said its plan to divest US$20 billion in assets “is substantially complete”, leaving a “simpler and stronger” company that it hopes will boost growth, operating profits and shareholder returns.
“We are aggressively driving forward as an aviation, power and renewable energy company three highly complementary businesses poised for future growth,” Flannery said in a statement.