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General Electric to Split Into Three Public Companies
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© Qilai Shen/Bloomberg NewsGeneral Electric Co. said it would split into three public companies, breaking apart the more than century-old company that was once a symbol of American manufacturing might and has struggled in recent years.
The plan is being unveiled three years after Larry Culp took over the troubled company and tried to stabilize its operations by selling off business units and paying down the company’s debt load. But GE’s stock price, despite a 1-for-8 reverse split, has lagged behind the S&P 500 and rivals.
The move is the culmination of a yearslong process of shrinking the company. GE has already sold off its locomotive and home appliances business. It spun off its oil-and-gas business operations. It has also sold most of its once massive financial services arm, which hobbled the company after the 2008 financial crisis. It also slashed its quarterly dividend to a token penny per share.
What remains today are three businesses—aviation, healthcare and power. The company will now spin them off into separate publicly traded companies.
“This is the best way to fully realize the potential of these businesses,” Mr. Culp said in an interview. The splits will bring more focus to the individual operations with separate boards having industry-specific expertise, benefiting customers and broadening the investor base.
The GE board began to consider the plan in the spring, Mr. Culp said, as efforts to cut GE’s debt and improve operations had progressed enough to consider such a move. “We looked at this and other options,” he said. “It was clear this is the right path for GE.”
GE said it is spinning off GE Healthcare, which makes MRIs and other hospital equipment, in early 2023, with GE expecting to retain a stake of 19.9%. In 2020, the unit had about $17 billion in revenue.
It plans to combine its power unit and renewable energy unit, which make turbines for power plants and wind farms, respectively, and spin off that operation in early 2024. Those units together had about $33 billion in revenue in 2020.
That would leave behind a GE focused on making jet engines. The unit, a key supplier to Boeing Co., has been hard hit by the pandemic and had about $22 billion revenue in 2020.
GE shares rose 7.5% in premarket trading. The stock price, adjusting for the split, is little changed from where it was when Mr. Culp took over in October 2018, compared with a roughly 60% gain in the S&P 500 index.
In some ways GE is following through on a plan that was being discussed by GE directors when Mr. Culp was first appointed to the CEO job. At the time, GE’s board planned on spinning off the healthcare business in an initial public offering, but Mr. Culp put those plans on hold.
The move will revive the debate among investors about the ideal structure for a manufacturing company. For decades, GE leaders had said that having a diverse mix of businesses in different parts of the world helped the company weather ups and downs in different markets. But it also caused an internal bureaucracy that some investors and former executives said made the company inefficient, complex and difficult to manage.
Mr. Culp, the first outsider to run GE, has been slashing corporate jobs, shrinking the headquarters staff and pushing more of those roles into the individual business units. GE also worked to simplify GE’s production and eliminate waste in supply chains, using lean manufacturing strategy he learned at Danaher Corp.
GE is following a strategy similar to German rival Siemens AG, which spun off its healthcare business in 2018 and then spun off its energy business in 2020. Both Siemens units compete with GE divisions.
Rival Honeywell International Inc. has spun off some smaller operations, but has remained a more diversified manufacturer. Honeywell now sports a market value of about $155 billion compared with about $120 billion for GE.
Mr. Culp will continue to serve as chairman and CEO of GE until the second spinoff, at which point he will lead the aviation business, GE said. Meanwhile, the executives currently slated to run GE’s units will remain in their roles.
Peter Arduini, who recently joined GE to run healthcare, will take over as the unit’s CEO starting Jan. 1. Two GE veterans, Scott Strazik and John Slattery, will continue as CEO of power and aviation, respectively.
Write to Thomas Gryta at thomas.gryta@wsj.com
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