GE to split into three units; end of conglomerate era?

Long admired as a company to contend with in the American industrial market, General Electric Company, or better known as GE, is splitting into three companies focused on healthcare, aviation, and energy.

GE Healthcare will be focused on precision healthcare and will be spun out of its parent in early 2023. GE will combine its renewable energy, power equipment and digital businesses into a separate unit that will then be spun off in 2024. Following these transactions, GE will be an aviation-focused company, shaping the future of flight.

As independently run companies, the businesses will be better positioned to deliver long-term growth, GE said.

GE Chairman/CEO Lawrence Culp referred to the split as a defining moment to enable "greater focus, tailored capital allocation, and strategic flexibility to drive long-term growth and value for customers, investors, and employees."

Set up by Thomas Edison in 1892, GE was synonymous with the light bulb after Edison and his assistants conducted their first successful experiments with a carbon-filament lamp in a vacuum. But 140 years later, in 2020, the company sold its lighting business.

Helmed under the enigmatic Jack Welch, who led the company for 20 years from 1981, GE was styled as an industrial powerhouse with a diversified empire consisting of power, consumer appliances, banking services, cable channels, and heavy industry like airplanes. In the end, the diversification, which was to allow for higher profits and spread the risk by overcoming business downturns in one or more of the sectors it operated, became too complex and weighty and GE struggled as it became a sprawling conglomerate.

When Culp took over in 2018, he started shedding businesses ranging from pharmaceutical manufacturing to aircraft leasing.

GE sold its plastics business, GE Plastics, to chemical firm Sabic in 2007 for US$11.6 billion. GE Plastics made polycarbonate, acrylonitrile-butadiene-styrene, polybutylene terephthalate, polyphenylene ether, and other engineering plastics and compounds. It was one of GE's oldest businesses, tracing its roots back to1930.

With other US materials conglomerates like Dow and DuPont consolidating and selling off business units, it was only a matter of time that GE went down this route.

GE adds that with the split it is on track to reduce debt by more than US$75 billion by the end of 2021 and is now on track to bring its net-debt-to-EBITDA ratio to less than 2.5x in 2023.

GE said it will also continue to drive operating improvements for sustainable profitable growth, and the company now expects to achieve high-single-digit free cash flow margins in 2023. As a result, GE says it is in a strong position to execute this plan to form three well-capitalised, investment-grade companies.

(PRA)

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