A simpler GE. What it means for investors
Investmark Advisory Group Principal Michael Lee on General Electric's efforts to turn the company around.
General Electric unveiled the details of its strategic review on Tuesday. GE will become a simpler company focused on aviation, power and renewables. GE Healthcare and Baker Hughes will be spun off.
For dividend investors, unfortunately, a cut is likley on the horizon.
GE will make GE Healthcare a standalone company over the next 12-18 months. This separation starts “immediately,” GE CEO John Flannery said during a conference call discussing the company’s strategic review. The company will also separate Baker Hughes over the next two to three years.
“Today marks the emergence of a new GE,” Flannery said during the call, adding, “This is a turnaround strategy.”
In the official release discussing the strategic review GE said it “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.”
On the call Flannery added it will “likely result in a reduction of the aggregate dividend,” while CFO Jamie Miller added that the company “will maintain the dividend until the healthcare separation.”
It has been a busy few days for GE. On Monday, GE announced that it sold its distributed power operations, including the reciprocating gas engine brands GE Jenbacher and Waukesha to private equity firm Advent International for $3.25 billion.
“With the announced sales of Distributed Power, Industrial Solutions, and Value-Based Care, and pending combination of its Transportation business with Wabtec, GE’s $20 billion divestiture target is substantially complete,” the company said.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| GE | GE AEROSPACE | 177.56 | -0.02 | -0.01% |
The company announced that it would target $20 billion in asset sales last fall, but the lack of clarity surrounding the asset sales left investors uneasy.
GE expects to generate cash from the disposition of approximately 20% of its interest in the health care business and to distribute the remaining 80% to GE shareholders through a tax-free distribution. By GE fully separating its 62.5% interest in Baker Hughes the company said Baker Hughes will gain enhanced agility and the ability to focus on leading in the oil and gas industry.
GE is also making changes to how it runs the company. It will have a smaller corporate headquarters and it will generate $500 million in corporate savings by the end of 2020. The company will shrink the balance sheet of GE Capital targeting sales of $25 billion in energy and industrial finance assets by 2020. Also, the company is actively exploring options to reduce its insurance exposure.
The restructuring won’t come for free. It expects restructuring will cost it between $800 million to $1.2 billion. The company will pay down debt by about $9 billion by 2020.