GE’s Culp makes breaking up look easy
“The whole is greater than the sum of the parts.” So goes the old adage.
But in the case of General Electric’s just-completed three-way corporate breakup, investors are putting a higher value on the pieces than the presplit package. That was GE’s intent when the plan was announced in November 2021, though there were doubts chief executive Larry Culp could pull it off.
The news: On Tuesday, GE’s power and renewable energy business began stock market trading as a separate company, Cambridge-based GE Vernova. The move followed last year’s spinoff to shareholders of GE HealthCare, its medical equipment business.
The rest of the company — which once sold everything from light bulbs to locomotives, and owned a Wall Street bank and a television network — lives on as GE Aerospace, a manufacturer of jet engines and aviation systems headquartered outside of Cincinnati.
Culp’s bet more than three years ago was that Wall Street would prefer three standalone companies focused on discrete industrial markets over one unwieldy conglomerate. He was right.
At the close of trading on Wednesday, the three stocks combined were worth about $237 billion, double GE’s pre-split value of $119 billion in November 2021.
Why it matters: Admittedly, Culp had a low bar to clear.
GE was once the most valuable company in the world with a peak market capitalization of nearly $600 billion in 2000. Two decades later, it wasn’t even the most valuable company in Massachusetts, a claim to fame held by Thermo Fisher Scientific.
That said, Culp has pulled off something remarkable and cemented his reputation as a CEO in the same elite class as Microsoft’s Satya Nadella and Jamie Dimon of JPMorgan Chase.
Culp set up GE HealthCare and GE Vernova to operate independently while keeping the aerospace business flying. GE’s stock has surged since the fall of 2022 as Culp sold assets and paid down debt, the outlook for airlines brightened, and investors warmed to a company with fewer moving parts to keep track of.
“He’s done a great job,” said Peter Cohan, a business strategy lecturer at Babson College and a longtime GE shareholder.
Step back: Culp, the first outsider to run GE since its founding in 1892, was well suited to remake the company, which had never fully recovered from the 2008 financial crisis. Before GE, he ran Danaher, a much smaller company that was considered a model of a successful conglomerate.
But he wasn’t beholden to the notion of keeping GE intact, and knew that Wall Street had soured on the
company — and conglomerates in general. GE had angered investors with a couple of bad acquisitions and problems keeping its books in order. And it was a bear to manage so many businesses and hard for investors to understand them all.
“There was often no economic logic for why conglomerates were put together,” Cohan said. “There was a sense of delusion that they had management skills to run them. It doesn’t work.”
Culp has now given investors the flexibility to choose among industry sectors. Think of it as changing the GE menu from prix-fixe to a la carte.
Final thought: Culp is in line for a big pay day. According to Forbes, he has met the performance goals required to receive the maximum payout from his long-term incentive package: 1.74 million shares that are worth roughly $300 million.
But GE investors who bought into Culp’s plan have been rewarded, too.
On Nov. 8, 2021, the day before the breakup was unveiled, 120 shares of GE were worth $13,355. On Wednesday, those shares, combined with the shares of GE HealthCare and GE Vernova that investors received, were worth $24,100.
That’s a gain of 80 percent. Over the same stretch, the Standard & Poor’s 500 index rose 11 percent.
Even on Wall Street, patience is sometimes a virtue.