General Electric Co. is exploring a sale of its industrial gas engine business that could be worth as much as $2 billion as the conglomerate looks to rebound from multiple problems.
Harry Brumpton and Greg Roumeliotis of Reuters had the story:
The move comes after Chief Executive Officer John Flannery, who took over as CEO last summer, indicated to analysts and investors for the first time last month that he was open to breaking up the company and said that a spinoff of any of its units, which include power, healthcare and aviation, was a possibility.
Divesting the industrial gas engine business, which includes the Jenbacher and Waukesha engines, would help streamline GE’s power division, whose profit plunged 45 percent last year as sales of power plants and services fell sharply.
GE has hired Citigroup Inc to prepare a sale process for the industrial gas business, the sources said on Friday. The sources asked not to be identified because the matter is confidential.
A GE spokeswoman declined to comment, while a Citigroup spokesman did not immediately respond to a request for comment.
Alwyn Scott and Jonathan Stempel of Reuters reported that GE also faces a shareholder lawsuit:
The complaint filed by the Cleveland Bakers and Teamsters Pension Fund appears to be the first proposed shareholder class action accusing GE of securities fraud since the company surprised investors with two negative announcements last month.
On Jan. 16, GE said it would take a $6.2 billion pretax charge and set aside $15 billion in reserves to help cover insurance operations held by its GE Capital unit, mainly concerning long-term-care insurance policies.
Eight days later, it said the SEC had begun probing how it handled its insurance obligations, as well as how it accounted for service agreements related to power plants, jet engines and other equipment.
Other defendants in the lawsuit, filed in federal court in New York, include GE Chief Executive Officer John Flannery, his predecessor Jeffrey Immelt, Chief Financial Officer Jamie Miller and her predecessor Jeffrey Bornstein.
“The company will defend itself against these claims,” a GE spokeswoman said.
Wayne Duggan of US News & World Report notes that the company may cut its earnings guidance further:
Barclays analyst Julian Mitchell says there is very little clarity about what to expect from GE’s core power business in 2018.
“While the weak share price performance and very negative sentiment towards the name make it screen attractively, we think there are still too many material downside risks (including a likely reduction to the company’s 2018 EPS guidance), and the upside potential in the absence of a major new power cycle is not compelling, given the stretched balance sheet,” Mitchell says.
For now, Mitchell is watching for a clear sign that there will be no more unpleasant surprises uncovered during GE’s restructuring process and management transition, a reliable indication of a bottom in thermal power generation demand or a positive resolution to the ongoing Securities and Exchange Commission investigation. Any of these developments could drive substantial upside in GE stock, Mitchell says.
On the other hand, Mitchell says there is real risk that General Electric shareholders could soon get hit with another earnings guidance cut. Earnings before interest and taxes dropped 45 percent last year, and Mitchell says consensus expectations for 2018 may still be too high.
