General Electric Co said on Tuesday it will spin off its healthcare business and divest its stake in oil-services company Baker Hughes, leaving the once-sprawling conglomerate focused on jet engines, power plants and renewable energy.
The changes are designed to reward battered shareholders and to strengthen GE’s balance sheet by reducing debt, building up cash and further shrinking GE Capital, the company said. Shareholders will receive 80 percent of the value of GE Healthcare as a tax-free distribution of shares, reports Reuters.
GE shares jumped 6.4 percent to $13.57 in early trading. The 126-year-old company, which was once the most valuable U.S. corporation, will spin off the profitable healthcare unit over the next 12 to 18 months, and sell its Baker Hughes stake over two to three years.
GE, whose stock has fallen more than 50 percent in the last 12 months, said it would keep its annual 48 cents-per-share dividend until the healthcare spinoff is completed.
The moves, which end a year-long strategic review, mirror changes that Wall Street analysts had called for a year ago. They come as GE is replaced in the Dow Jones Industrial Average, the iconic stock index that GE was a founding member of in 1896.
With these finishing touches, GE said its plan to divest $20 billion in assets “is substantially complete,” leaving a “simpler and stronger” company with plans to boost its growth, operating profits and shareholder returns.
“We are aggressively driving forward as an aviation, power and renewable energy company – three highly complementary businesses poised for future growth,” Chief Executive John Flannery said in a statement.
The remaining businesses “share similar technologies and industrial markets, in contrast to limited synergies that exist with GE Healthcare,” Fitch analyst Eric Ause said in a note.
The changes leave GE with some of its best- and worst-performing units. Aviation has been highly profitable, but the power business profit has tumbled as sales of plants and services have slowed, and renewable energy profit margins are in the single digits.
The spinoff of its healthcare unit follows a similar move by rival Siemens AG, which floated its medical business as a separate company, Siemens Healthineers, in March.
GE faces tough competition for medical imaging machines, which include MRI scanners and ultrasound devices, from rivals Philips and Siemens, as well as Asian upstarts.
On Monday GE said it agreed to sell its distributed power unit for $3.25 billion to U.S. buyout group Advent. GE also has agreed to shed its transportation unit, which makes railroad locomotives.
GE bought Baker Hughes in July 2017 and combined it with the GE oil and gas equipment and services operations to create a new company in which GE holds a 62.5 percent stake. The unit reported sales of $17.23 billion in 2017.
GE estimated that restructuring costs would be between $800 million and $1.2 billion, and it plans to reduce its industrial net debt by about $25 billion by 2020 and maintain more than $15 billion of cash on its balance sheet.
The company has foundered in several key industrial markets in recent years, and a foray into financial services steered it into the eye of the global financial crisis in 2008. GE has since largely divested GE Capital, but lingering liabilities forced GE to take a $6.2 billion charge last year, and begin setting aside $15 billion more in reserves against insurance claims.