GE Healthcare to be spun off as a separate business
GE Healthcare, one of Wisconsin’s largest employers, will be spun off into a separate company as its struggling parent company takes steps to reshape its business.
The planned spinoff was part of a major restructuring announced Tuesday by General Electric Co. to streamline its focus and strengthen its balance sheet.
GE Healthcare employs about 6,000 people in Wisconsin with operations in Milwaukee, Waukesha and Madison.
The company’s operations in the state include its imaging business unit, which makes MRI, CT and PET scanners; ultrasound devices; bedside monitors; and incubators for neonatal intensive care units.
The spinoff will take between 12 and 18 months to complete, GE Chairman and CEO John Flannery said Tuesday morning on CNBC.
The announcement came one day after GE said it would sell its distributed power unit, which includes the former Waukesha Engine, to Advent International, a private equity firm based in Boston, for $3.25 billion.
GE Healthcare, now based in Chicago and once based in Waukesha, recorded a $3.5 billion operating profit on revenues of $19 billion in 2017.
In addition to making medical imaging scanners, GE Healthcare’s businesses include biomanufacturing and cell therapy technology, contrast agents used in imaging, mammography equipment, and surgical and interventional equipment.
Once the most valuable U.S. corporation, GE saw its stock fall 45 percent last year and an additional 28 percent this year when it hit a 52-week low of $12.61 a share this week.
The stock closed up 99 cents per share, or nearly 8 percent, at $13.74 Tuesday.
GE has struggled to reduce its debt and unfunded pension liabilities after a series of poorly timed acquisitions and stock buybacks in the past decade. For example, it spent almost $80 billion to buy back stock at prices above $30 a share, according to a recent article in Fortune magazine.
The company’s woes led to last year’s resignation of Jeffrey Immelt, who was promoted to CEO in 2001 and who previously had led GE Healthcare when it was based in Wisconsin.
“GE plans to turn GE Healthcare into a standalone business, distributing 80 percent to GE shareholders and monetizing the remaining 20 percent,” the company said. “GE’s Aviation, Power and Renewable Energy units will form a new core of the company.”
GE also said it plans to sell its 62.5 percent stake in Baker Hughes over two to three years.
On CNBC, Flannery said Tuesday’s announcement was the culmination of a year he had spent examining the company.
“It’s not just the health care story. It’s a broader repositioning of the core GE,” Flannery said.
He mentioned “investor appetite” and growth opportunities for the health care business as a separate company.
“It’s been growing nicely,” said Flannery, who previously served as head of the health care division.
“There’s just a lot of change in that industry,” Flannery said, noting that advances in artificial intelligence and machine learning are transforming the medical imaging business.
Kieran Murphy, president and CEO of GE Healthcare, will remain in his position when GE Healthcare becomes a standalone company.
“As an independent global health care business, we will have greater flexibility to pursue future growth opportunities, react quickly to changes in the industry and invest in innovation,” Murphy said in a statement. “We will build on strong customer demand for integrated precision health solutions and great technology with digital and analytics capabilities as we enter our next chapter.”
GE said it expects to maintain its quarterly dividend of 12 cents a share until GE Healthcare is spun off as a separate company.
The dividend was halved last year.
The company also said it plans to reduce its net debt by approximately $25 billion by 2020 and keep more than $15 billion of cash on the balance sheet.
The shedding of GE Healthcare will reduce GE’s corporate diversity and cash flow, S&P Global Ratings said in a news release.
“This sizable divestiture, coupled with announced asset sales, continues GE’s strategy to build a stronger balance sheet in light of recent operational challenges in its power segment and the need to address contingencies at its financial services unit, including an intention to contribute $3 billion of capital to GE Capital in 2019,” S&P Global ratings said.