General Electric Co. announced plans on Tuesday to spin off its health-care unit and separate its stake in oil services company Baker Hughes over the next two to three years so that it can focus its operations on the aviation, power and renewable energy businesses.
Tae Kim of CNBC.com had the news:
GE said it will maintain its current quarterly dividend until it spins off its health-care unit. The company will then adjust the dividend “in line with industrial peers.”
Flannery later said on an investor call the company will likely lower its “aggregate” dividend once the health-care spinoff is finished.
GE shares rose 7.76 percent Tuesday, marking its best day since April 10, 2015. Its stock is down 27 percent this year through Monday and has declined by 54 percent over the past year.
The company also plans to reduce its net debt by about $25 billion by 2020 and generate $500 million or more in corporate cost savings by the end of 2020.
The CEO also told CNBC on Tuesday, “We are finished” when he was asked whether GE will be making any other restructuring moves.
Kinsey Grant of TheStreet.com reported that the GE aviation business is strong:
“We’ve changed many things, but the essence of GE endures,” CEO John Flannery said. “This team had fought through the last 12 months with superhuman resolve and determination … We are motivated first and foremost by making a positive difference in the world.”
Flannery explained that, “Aviation, power and renewable will be the core of GE moving forward.” He repeated numerous times on the call how the three businesses share both similar headwinds and tailwinds. Those three businesses will be the “center of gravity” for the company moving ahead, the executives said.
Flannery explained that GE’s “technology stack has never been stronger” in aviation, but results of late at the power business have been “unacceptable.” The CEO continued to explain that power is a “turnaround story and we are confident in our ability to improve the future operating performance.”
Aviation, power and renewable energy are “stronger together than they would be if innovated in isolation,” Flannery said. “We are certain that with focus and a strong balance sheet GE will be a tech-driven growth story again within the coming years.”
Matt Egan of CNNMoney.com reported that the company wants to shed $25 billion in debt by 2020:
When he took the helm last year, Flannery inherited a mess from Immelt. Total debt, including pension liabilities, has nearly tripled since 2013, according to Moody’s. At the same time, GE’s business has deteriorated, leaving the company with less cash to pay back debt.
Under Immelt, GE’s pension shortfall swelled to the largest in the S&P 500 due to inattention and extremely low interest rates.
Flannery is trying to fix GE by taking a different approach than Immelt and former legendary CEO Jack Welch. He’s moving to simplify GE, which had grown very complex in recent decades.
After selling assets, GE hopes to slash $25 billion of net debt by 2020 and boost the company’s cash levels. The goal is to get GE back to healthy borrowing levels and keep its strong credit rating.
Still, S&P Global Ratings warned on Tuesday that it expects to slash GE’s credit rating by one notch after the health care deal is completed due to the loss of cash flow and diversity.