GE Shares Sink After Proposing Reverse Stock Split, Confirming $ 30 Billion AerCap Deal


Shares of General Electric Co. tumbled on Wednesday after the industrial conglomerate confirmed a $ 30 billion deal with AerCap Holdings NV, while surprisingly also proposing a reverse 1-for-8 stock split.

GE, which hosted an analyst meeting early Wednesday, also provided financial guidance for 2021, in which the adjusted earnings range was a bit pessimistic, but income and free cash flow ranges were in line with expectations.

GE stock,
-6.32%
swung fell 6.0% in morning trading, heading for the biggest drop in a day since Sept. 21, 2020, when it fell 7.7%. The drop comes after stocks rose 11.6% between March and Tuesday, including a 3-year high of $ 14.17 on Monday, while the S&P 500 SPX index,
+ 0.27%
it has gained 1.7% during the same time.

The reverse split could come as a surprise to investors because they are generally reserved for companies that are concerned that their share price may or may have fallen below thresholds that could lead mutual fund investors to avoid stocks or incite to Exchanges to issue delisting notices. Learn more about reverse stock splits.

In GE’s case, the company said its board was recommending the reserves division, which will be voted on by shareholders at the May annual meeting, given the company’s “significant transformation” in recent years.

“Reverse stock splitting would decrease the number of shares outstanding to a more typical number of companies with comparable market capitalization,” GE said in a statement.

FactSet, MarketWatch

GE had a market capitalization of $ 122.75 billion at Tuesday’s closing share price and had 8.77 billion shares outstanding as of January 31. By comparison, Lowes Companies Inc. LOW,
+ 0.76%,
With a market capitalization of $ 121.34 billion, it has about 734 million shares outstanding, while Starbucks Corp. SBUX,
+ 1.79%,
With a market capitalization of $ 125.44 billion, it has 1.18 billion shares outstanding.

GE’s proposed reverse split would effectively multiply the share price by eight, while reducing the number of shares outstanding to approximately 1.1 billion. If shareholders approve the split, the split will become effective at the discretion of GE’s board of directors, at any time prior to the first anniversary of the annual meeting on May 4, 2021.

GE confirms agreement with AerCap

GE confirmed on Wednesday an agreement to combine its aircraft leasing business GE Capital Aviation Services (GECAS) with AerCap, in a deal that creates more than $ 30 billion in value for GE shareholders.

The Wall Street Journal had reported earlier this week that a deal was approaching.

Under the terms of the deal, GE will receive $ 24 billion in cash and 111.5 million common shares, with a market value of about $ 6 billion and representing a 46% ownership interest in the combined company. .

GE said it plans to use the proceeds from the deal to further reduce debt, bringing the total debt reduction since the end of 2018 to more than $ 70 billion.

The deal is part of a multi-year effort by GE to reduce risk at GE Capital, which is expected to have an estimated $ 21 billion in assets after the deal closes, down from $ 68 billion at the end. 2020. close in nine to 12 months. And once the deal closes, those remaining assets will become part of the consolidated industrial balance sheet.

“Today marks GE’s transformation to a more focused, simpler and stronger industrial company,” said CEO Larry Culp.

“AerCap is the right partner for our exceptional GECAS team,” said Culp. “We are creating an industry-leading aviation lessor with the experience, scale and scope to better serve customers around the world, while GE secures cash and a significant stake in the strongest combined company, with the flexibility to monetize. as the aviation industry recovers. “

GE financial guidance

As part of its analyst day, GE provided details on its financial guidance for 2021.

The company expects full-year adjusted earnings per share of 15 to 25 cents, compared to the FactSet consensus of 25 cents.

For revenue, GE expects growth in the “low single digit” percentage range, while the current FactSet revenue consensus of $ 80.4 billion implies an increase of 1.0%.

Free cash flow is expected to be $ 2.5 billion to $ 4.5 billion this year, which surrounds the FactSet consensus of $ 3.6 billion.

GE said its guidance is based on the assumption that the aviation market will start to recover in the second half of the year. GE assumes a growth in the renewable energy market, an accelerating change in the energy business and sees an “attractive” healthcare market, with scans down to pre-COVID levels.

“We are on a positive trajectory in 2021 as momentum increases in our businesses and we transform into a more focused, simpler and stronger industrial company,” said CEO Culp. “We are excited to shift more to the offensive, investing in innovative technologies to meet the needs of our customers and the world, for more sustainable, reliable and affordable energy; more integrated and personalized healthcare; and smarter and more efficient flight. “

Shares in GE have now rallied 16.2% in the past three months and have soared 48.6% over the past 12 months. By comparison, SPDR Industrial Select Sector’s XLI exchange-traded fund,
+ 0.40%
it has advanced 36.6% over the last year and the S&P 500 is up 34.9%.

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