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General Electrical: Healthcare Spin Off

July, 2018

General Electrical: Plans to separate its healthcare business as a standalone business from oil giant Baker Hughes

GE announced to spin-off its healthcare business and gain focus on aviation, renewable energy, and power. This radical approach to reshape has resemblance to the conglomerate due to its financial position. The struggle to reshape its business and decline in stocks has led GE to announce the spin-off. It is planning to downsize in next 2 years primarily to reduce debts by $25 billion.

The balance sheet dint sound financially strong due to significant changes in its business segments that included Power and Gas. In 2017, the company revenues were down by 1% at $122.1 billion and delivered $(0.68) earing per share (EPS) on GAAP basis.  The performance and focus were poor resulting lost in its hallmarks for generations it had gained. Also, the stock has been declining in last few years and lost 45% in 2017 and 27% in 2018. This led GE to move out of the blue-chip index that had been in the history for more than 100 years. As GE was a focusses high-tech industrial company and most of the investors follow and measure the activities closely to support the business. The company has lost the confidence and many people have lost faith in it. However, the company has planning to maintain its dividend through its GE Healthcare spinoff, which is expected to adjust the GE dividend policy in lieu with industrial business segment.

  • In June 2018, the company announced for the first time in 110 year of its history that it was not on the Dow Jones Industrial Average and was replaced by Walgreens Boots Alliance in the elite 30-stock index

  • The company is making efforts and planning to reduce its debt by $25 billion and develop a structured corporate environment with a focus on $0.5 billion savings

  • By selling of its GE Healthcare business, the company is expecting to earn approximately 20% of its interest and distribute the rest 80% among the GE shareholders

  • GE Healthcare generated $19 billion and recorded a $3.5 billion operating profit in 2017. It holds a strong position in medical imaging scanners, biomanufacturing, surgical, interventional equipment, and cell therapy technology

  • Its strategy is to build a stronger balance sheet and overcome the operational challenges to regain its ratings in the global market. Further, it has intended to contribute about $3 billion of capital to the GE capital by 2020

  • The material shrink is expected to gain a positive arm in the balance sheet and explore new options to build an effective strategy. This will help the company to hold the other business segments run smoothly in coming years

Having many business segments and maintaining a single corporate level strategy has become difficult for GE. The ignorance and less focus towards sustainable growth has affected GE to face a corporate stumble leading to spin-off. However, focusing towards sustainable growth by accomplishing various social and business activities especially CSR will help to regain and stand leading once again in the market.

– Mohammed Azhar
Senior Research Analyst
Infoholic Research