General Electric Co has revealed that it will spin off its healthcare business and divest its stake in oil services firm Baker Hughes, effectively breaking up the 126-year-old conglomerate which was once the most valuable US corporation and a global symbol of American business power, said a report.

The slimmed-down company will focus on jet engines, power plants and renewable energy, which GE hopes will reward battered shareholders who have seen the stock lose more than half its value over the past 20 years, added the Reuters report.

Following the announcement of the results of its strategic review, GE will focus on Aviation, Power and Renewable Energy, creating a simpler, stronger, leading high-tech industrial company, GE said.

In addition to the pending combination of its transportation business with Wabtec, GE plans to separate GE Healthcare into a standalone company, pursue an orderly separation from Baker Hughes over the next two to three years, make its corporate structure leaner and substantially reduce debt. GE’s board of directors unanimously approved the plans announced yesterday (June 26).
 
John Flannery, chairman and chief executive officer, GE, said: “Today marks an important milestone in our company’s history.”

“We are aggressively driving forward as an aviation, power and renewable energy company—three highly complementary businesses poised for future growth. We will continue to improve our operations and balance sheet as we make GE simpler and stronger,” he said.
 
Flannery continued: “GE Healthcare and Baker Hughes are excellent examples of our company at its best—anticipating customer needs, breaking barriers through innovation and delivering life-changing products and services.”

“Today’s actions unlock both a pure-play healthcare company and a tier-one oil and gas servicing and equipment player. We are confident that positioning GE Healthcare and Baker Hughes outside of our company’s current structure is best not only for us and our owners, but also for these businesses, which will strengthen their market-leading positions and enhance their ability to invest for the future, while carrying the spirit of our company forward,” he added.

GE will be a focused high-tech industrial company that will be easier for investors to follow and measure with a significantly improved balance sheet to support its remaining businesses:

GE Aviation continues to be a leader in the aviation industry. GE technology powers two out of every three commercial departures around the world and GE’s global installed base includes more than 65,000 engines, said a company statement.

GE’s energy strategy, driven by GE Power and GE Renewable Energy, is based on offering a full range of energy solutions across the electricity value chain that bring affordable, reliable, efficient energy to businesses and consumers. GE powers more than one-third of the world’s electricity and has a valuable installed base of approximately 7,000 gas turbines, with a track record of increasing productivity.

GE will continue to invest for the future and lead in innovative technologies like additive manufacturing and digital to lead the next wave of industrial productivity.

GE is making fundamental changes to how it will run the company. The new GE Operating System will result in a smaller corporate headquarters focused primarily on strategy, capital allocation, talent and governance. It will result in better execution, increased speed and is expected to generate at least $500 million in corporate savings by the end of 2020.

Under the new GE Operating System, most resources and services traditionally held at the headquarters level will be realigned to the businesses.
 
GE is targeting an Industrial net debt-to-EBITDA ratio of less than 2.5 times and a long-term A credit rating. GE also plans to reduce Industrial net debt by approximately $25 billion by 2020 and maintain more than $15 billion of cash on the balance sheet.  
 
GE expects to maintain its current quarterly dividend, subject to Board approval, until GE Healthcare is established as an independent entity. At that time, the new GE Healthcare board of directors will determine GE Healthcare’s dividend policy, which GE expects to reflect healthcare industry practices. Also at that time, the GE board expects to adjust the GE dividend with a target dividend policy in line with industrial peers, it said.

Kieran Murphy, president and chief executive officer of GE Healthcare, will continue to lead GE Healthcare as a standalone company, maintaining the GE brand.
 
Murphy said: “GE Healthcare’s vision is to drive more individualised, precise and effective patient outcomes. As an independent global healthcare business, we will have greater flexibility to pursue future growth opportunities, react quickly to changes in the industry and invest in innovation.”

“We will build on strong customer demand for integrated precision health solutions and great technology with digital and analytics capabilities as we enter our next chapter,” he added.
 
Flannery continued: “GE Healthcare is an industry leader with financial strength, global scale and cutting-edge technology.  Our talented healthcare team will continue delivering precision health solutions, building on our heritage of technology innovation that delivers patient outcomes.”
 
GE Healthcare recorded over $19 billion in revenues in 2017 and posted five per cent revenue growth and nine percent segment profit growth in the same year. The business provides medical imaging (including contrast agents), monitoring, biomanufacturing and cell therapy technology, leveraging deep digital, artificial intelligence and data analytics capabilities.  Its products and services are valued by customers in 140 countries around the world.
 
GE expects to generate cash from the disposition of approximately 20% of its interest in the Healthcare business and to distribute the remaining 80% to GE shareholders through a tax-free distribution. The structure, sequence and timing of these transactions will be determined and announced at a later date, but are expected to be completed over the next 12 to 18 months. GE Healthcare will conduct business as usual throughout this process, continuing to serve its partners and customers.

Additonally, GE plans to fully separate its 62.5 per cent interest in BHGE in an orderly manner over the next two to three years. BHGE’s full stream offering brings together equipment, services and digital solutions to help its customers be more productive—a unique and powerful value proposition in a changing market.

The separation will provide BHGE with enhanced agility and the ability to focus on leading in the oil and gas industry, it stated. – TradeArabia News Service