GE will reverse the health business in the latest modernization



General Electric
Co.


GE -2.30%

will split from its health care business and will divest itself of its property in the company of oil services

baker Hughes


BHGE -0.86%

betting that the once-expanding conglomerate can reverse a painful fall by shrinking further.

The movements are the conclusion of a one-year strategic review by the CEO

John Flannery

that has been tumultuous for GE employees and investors. The former industrial leader has drastically reduced its dividends and has already established plans to exit numerous businesses. Their shares have fallen by half in the last year, erasing more than $ 100 billion in wealth.

The final plan, presented on Tuesday, focuses GE on its energy, aviation and renewable energy businesses. These units, which accounted for more than half of the $ 122 billion in GE revenues last year, mostly sell turbines to power plants and engines to aircraft manufacturers. The news confirmed an earlier report by The Wall Street Journal.

"Today's actions unlock both a pure health care company and a level one oil and gas services and equipment player," Flannery said in a press release. . "Now we will move forward with the purpose of making our company simpler and more solid and accelerate growth in all of our businesses."

The new GE board approved the new strategy, and there are no plans to sell additional divisions or separate the aviation and energy divisions, said people familiar with the discussions.

People will likely reduce dividend payments after the spin-off of their health business and will need to inject more funds into their financial arm next year.

The new plan foresees a company much smaller than GE Just a decade ago, when it also filled American homes with appliances, it owned NBCUniversal and managed one of the largest US lenders. UU., Financed everything from mortgages to insurance.

GE launched the plan on the same day that the Boston-based company withdrew from the Dow Jones industrial average, a position it has held since 1907. GE shares closed at $ 12.75 on Monday. Shares increased 2.5% in pre-market trading.

Mr. Flannery, a veteran of three decades who took office in August, pledged to renew GE's corporate umbrella, which provided research, marketing and other functions to the business units. On Tuesday, the company said it plans to reduce those operations, with $ 500 million in additional costs reduced by the end of 2020. The plan's specifications, including possible layoffs, could not be determined.

GE said its smaller staff at headquarters will focus primarily on strategy, capital allocation, talent and governance. The company said that many resources and services traditionally at headquarters will be transferred to the business units in an effort to accelerate decisions and improve execution.

GE said it plans to reduce the net debt of its core industrial businesses by about $ 25 billion by 2020. The company said it would maintain its quarterly dividend until the health business is separated.

GE's larger fortunes units have been separated in recent years, raising questions about their structure and conglomerate leadership. The energy business has struggled with weak demand and falling profits, which caused thousands of job cuts. The aviation unit handles solid orders for its new jet engines and generates almost half of the company's industrial profits.

GE has also been grappling with problems in what remains of GE Capital, including surprise losses in a long-term legacy business care insurance. Under the latest plan, people said, GE will further reduce GE Capital loans and the parent company will make a contribution of $ 3 billion to the finance division in 2019.

Sales and profits have increased in the health care unit, which accounted for approximately 16% of company-wide sales, or $ 19 billion, last year. The business produces MRI machines and other equipment sold to hospitals, as well as laboratory supplies for biotechnology companies.

GE plans to sell 20% of the division, the company said, and will then distribute the rest to its current shareholders. The newly separated company would also badume $ 18 billion in liabilities from its parent company, people familiar with the plans said. The division will continue to be managed by the CEO

Kieran Murphy

and the separation will take between 12 and 18 months, they added.

GE said on Tuesday it expects to exit its investment in Baker Hughes in the next two or three years. GE merged its oil and gas business with Baker Hughes in 2016, leaving GE with a two-thirds stake in the enlarged public company. Those actions are now worth around $ 23 billion and executives have doubted whether GE would hold on to the stake or reduce it.

The Baker Hughes agreement was one of the last major movements of the former CEO

Jeff Immelt,

who led GE for 16 years and left last summer amid pressures to increase profits and reactivate the stock price. In addition to investing in the oil field, Mr. Immelt doubled in the energy business collecting badets from his rival

Alstom
SA

and sold much of GE Capital after the financial crisis.

Mr. Flannery, who spent most of his years at GE Capital, ran GE Healthcare before being selected to succeed Mr. Immelt. Some investors and badysts have criticized the pace of change at GE last year, as stocks have declined drastically. Mr. Flannery undertook to examine all options for companies, but he worked at his own pace and communicated broadly.

GE board called

Larry Culp,

former CEO of Danaher Corp., as the principal independent director. The change comes only two months after Culp joined the board in a review that eliminated several of its senior directors and added three external ones.

The company's decision to separate medical care and separate Baker Hughes comes a month after Mr. Plannery agreed to exit the railroad business by merging GE's locomotive business with

Wabtec
Corp.

in an agreement of $ 11 billion.

Earlier this week, GE agreed to sell its gas engine business to a private equity company for around $ 3 billion. For more than a year, he has also been looking to sell his centenary lighting business.

If GE completes all proposed transactions, it would leave behind a simpler company with four divisions, including a very diminished branch of finance. Last year, GE had eight divisions.

"I have no nostalgia for how things have been," Flannery told investors last month at an industry conference. "If there is a better way to do things, we will do them"

Write to Thomas Gryta at [email protected]

.


Source link

Check Also

Activision Blizzard, TripAdvisor, Akamai Technologies, CBS, Wyndham Hotels & Resorts, Hilton Worldwide Holdings

These are some of the companies with shares that are expected to be actively traded …