After Years of Struggles, GE Is Splitting Up
General Electric (GE) is splitting into three publicly traded companies, breaking up a more than 100-year-old juggernaut. More recently, GE has struggled to turn itself around despite shedding assets and reducing debt. Even a one-for-eight reserve split wasn’t enough to boost the stock’s performance compared to the S&P 500.
In the years leading up to GE’s breakup, the manufacturer shed assets including home appliances and locomotives. It also got out of oil and gas and unloaded most of its financial services unit. What was left—aviation, healthcare, and power—is now being dismantled into independent entities. The breakup also comes three years after Larry Culp took over as CEO for the company.
Units Better Off on Their Own
Investors applauded the news, sending shares of GE higher yesterday. By splitting up the businesses, GE thinks that each unit, with a separate board and industry-specific expertise, will be able to focus more and better realize their potential.
GE plans to spin off GE Healthcare in the early part of 2023, retaining a 19.9% stake, which it will eventually sell. The unit, which makes hospital equipment such as MRIs, had sales hit $17 billion last year.
As for GE’s power unit, the company plans to combine it with the renewable energy unit and GE’s digital assets. The unit will be spun off in the beginning of 2024. Combined, the three businesses had 2020 revenue of $33 billion. The aviation unit would be GE’s sole business once the spinoffs are complete.
Do Manufacturers Need to Be Diversified?
GE’s split comes as investors debate the best structure for a manufacturing company. GE had long argued that having an array of businesses helps it cushion blows when one area struggles. But some say this model also created complexity and internal bureaucracy, which hurt GE’s ability to thrive.
Rival Siemens (SIEGY) has taken a similar path to GE. In 2018 it spun off its healthcare unit and in 2020 it sold its energy business. Meanwhile, Honeywell International (HON) has shed smaller assets but still remains diversified. GE’s breakup is an end of an era for a manufacturing giant. It will be interesting to see if more manufacturing rivals follow a similar path.
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