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Storied General Electric to split into 3 public companies

November 9, 2021   by Michelle Chapman (AP)

(AP) The storied American company General Electric, which struggled under its own weight after growing to become a sprawling conglomerate, will divide itself into three public companies focused on aviation, healthcare and energy.

GE has spent recent years unwinding the empire created by Jack Welch in the 1980s. It was heavily damaged by the financial crisis, particularly the financial division of the company that was dislodged this year.

The company has already spun off many of the products most Americans are familiar with, including its appliances and last year as well as the light bulbs that it had been making since the late 19th century when the company was founded.

When the General Electric announced Tuesday that it will spin off its healthcare business in early 2023 and its energy segment including renewable energy, power and digital operations in early 2024, it may have signaled the end of the conglomerate era.

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The company hopes to find more centralized growth, and profit, by dividing itself into three companies with completely different goals and focus.

“By creating three industry-leading, global public companies, each can benefit from greater focus, tailored capital allocation, and strategic flexibility to drive long-term growth and value for customers, investors, and employees,” Chairman and CEO Lawrence Culp Jr. said in a prepared statement Tuesday.

Culp will become non-executive chairman of the healthcare company, with GE maintaining a 19.9% stake in the unit. Peter Arduini will serve as president and CEO of GE Healthcare effective January 1, 2022. Scott Strazik will become CEO of the combined renewable energy, power, and digital business. Culp will lead the aviation business along with John Slattery, who will remain its CEO.

In 2015, years after the financial crises had exposed its vulnerability, GE announced a radical transformation with a plan to shed billions in assets to better focus on the company’s industrial core, namely power, aviation, renewable energy and healthcare.

Two years later Jeff Immelt, who had led the company since 2001 after taking over for Jack Welch, was replaced by John Flannery. While it had spun off its appliance division the previous year, Flannery was replaced in just one year by Culp, who envisioned a vastly different, smaller, and more stable GE.

Culp achieved a major milestone this year in a $30 billion deal to combine GE’s aircraft leasing business with Ireland’s AerCap Holdings. Because the arrangement pushed GE Capital Aviation Services into a separate business, Culp essentially closed the books on GE Capital, the financial wing of of General Electric that nearly sank the entire company during the 2008 financial crisis.

That marked a turnaround this year, at least for investors. The long-suffering stock of General Electric Co. began to bounce back. Shares are up 33% this year, outpacing the S&P 500.

GE’s stock was once one of the most desired on Wall Street, routinely outperforming peers and the broader market. Through the 1990s, it returned 1,120.6% under Welch. Its revenue grew nearly fivefold during Welch’s tenure, and the firm’s market capitalization increased 30-fold.

But the stock began to lag in the summer of 2001, in the waning days of Welch’s rule. Then the financial crisis hit, pummeling the company’s financial wing, GE Capital. The company’s shares lost 80% of their value from the start of 2008 into the first few months of 2009.

On Tuesday, shares of GE jumped 6% to a new high for the year.

The company said Tuesday that it expects operational costs of approximately $2 billion related to the split, which will require board approval.

The Boston company also announced Tuesday that it expects to lower its debt by more than $75 billion by the end of the year.