General Electric to spin off its healthcare business

Lynette PayneJun 28, 2018

(GE) said Tuesday that it plans to spin off its healthcare business into a standalone company and also sell its stake in oil services company Baker Hughes (BHGE).

Since then, GE has trimmed costs, streamlined its board, cut its dividend and revamped employee compensation.

This leaves the original Dow component with only its renewable energy, jet engines and renewable energy as it leaves the industrial index on Tuesday to be replaced by Walgreens Boots Alliance.

The moves continue a radical reshaping of GE, which bears little resemblance to the conglomerate that used to count NBC, home-appliances, plastics and a sprawling finance unit among its business holdings.

CEO John Flannery called this a "turnaround strategy", but it's clearly a break-up of the company that was part of the Dow Jones Industrial Average from its inception in 1896 until the day of the announcement.

GE traces its roots to Thomas Edison and the invention of the light bulb, and the company grew with the American economy.

The most problematic asset GE is trying to sell is its insurance business, which has incurred hefty charges, sparked shareholder lawsuits, and an investigation by USA regulators. GE has already unloaded NBC Universal as well as much of GE Capital, the banking division that almost killed the company during the financial crisis.

GE said its plan will strengthen its balance sheet by reducing debt, building up cash and further shrinking GE Capital. I have long believed that there is value in making GE simpler and giving its business units more autonomy.

Shares of GE fell about 1.5% in trading Monday, and are down 28% since the beginning of 2018. The stock carved out a 52-week low down at $25.53.

GE Healthcare (Little Chalfont, UK) recorded over $19 billion in revenues in 2017 and posted 5% revenue growth and 9% segment profit growth in the same year.

GE did not entertain talks at the time and remains unconvinced that any offer would be able to match how much the tax-efficient spinoff will earn for shareholders, the person said.

GE Capital will also be pared down by $25 billion.

The timing of the announced transactions will be determined at a later date, but are expected to be completed over the next 12 to 18 months, according to the company.

Indeed, in addition to separating out its healthcare unit, GE also will be giving up its stake in the oil services company Baker Hughes. Rational Advisors LLC acquired a new position in Baker Hughes A GE during the 1st quarter worth approximately $139,000.

The Baker Hughes spinoff comes less than a year after GE acquired its controlling stake in the company for $32 billion. Certain restrictions prevent GE from exiting the business before mid-2019. Flannery ran it before becoming CEO past year, and cemented his reputation by turning it around. Total debt, including pension liabilities, has almost tripled since 2013, according to Moody's. He took a different tune while serving under former CEO Jeff Immelt, who was an advocate for the benefits of being able to tap into the parent company's resources and benefits. He's moving to simplify GE, which had grown very complex in recent decades. The goal is to get GE back to healthy borrowing levels and keep its strong credit rating. The company said it has a global installed base of about 7,000 gas turbines.

General Electric's breakup gives its health-care unit a chance to shine. So, GE stock is in a transition phase to say the least.

A number of equities research analysts recently weighed in on the company. The Life Sciences unit of GE Healthcare provides biomanufacturing, cell therapy, and laboratory technologies. It will spin off its medical-equipment business and sell its majority stake in oilfield supplier Baker Hughes. GE shocked investors this year with a $15 billion shortfall in insurance reserves. The news sent GE's stock spiraling and triggered an investigation from the SEC.

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