General Electric‘s split into three public companies has raised questions on the viability of conglomerates as a whole in the era of digital economy. The 129-year-old conglomerate’s most profitable unit focussed on aviation will keep General Electric in the name with spinoff plans for both the healthcare and energy units by early 2024. “It’s over now,” said Nick Heymann of William Blair, who has followed GE for years. “In a digital economy, there’s no real room for it.”
The company has already rid itself of its famed products, including the light bulbs that it had been manufacturing since its founding in the late 19th century.
Aviation giant General Electric announces $30 billion tie-up with AerCap
The breakup marks the apogee of those efforts, divvying up an empire created in the 1980s under Jack Welch, one of America’s first CEO “superstars.”
GE’s stock was a Wall Street favourite under the watch of its chief executive officer (CEO) Jack Welch, returning 1,120.6% on investments through the 1990s. The company’s revenue and value increased by nearly five-fold and 30-fold during Welch’s tenure.
Elon Musk agrees to sell 10% Tesla shares after Twitter poll result
However, GE shares lost 80% of their value from the start of 2008, a year marked by the worst economic crisis to hit the world since the Great Depression, into the first few months of 2009.
The split was well received Tuesday in the markets with General Electric Co. shares reaching a year-long high of $111.29 after gaining $2.87, or 2.7%.
How Bitcoin price and inflation are co-related
“The strategic rationale is clear: three well-capitalized, industry leading public companies, each with deeper operational focus and accountability, greater strategic flexibility and tailored capital allocation decisions,” wrote Trian Fund Management, a large stakeholder whose founding partner serves on GE’s board.
Heymann, of William Blair, said the conglomerate model no longer works in a marketplace in which only the quick and agile survive.
Planet over tourism: Prince William slams billionaires racing to space
GE Chairman and CEO Larry Culp will become nonexecutive chairman of the health care company, with GE maintaining a 19.9% stake in the unit. Peter Arduini will serve as president and CEO of GE Healthcare effective Jan. 1. Scott Strazik will become CEO of the combined renewable energy, power, and digital business. Culp will lead the aviation business along with John Slattery, who will remain its CEO.
Metaverse, the ‘future of internet’ draws in Big Tech
Culp achieved a major milestone this year in reshaping General Electric with a $30 billion deal to combine GE’s aircraft leasing business with Ireland’s AerCap Holdings. Because the arrangement pushed GE Capital Aviation Services into a separate business, Culp essentially closed the books on GE Capital, the financial division that nearly sank the entire company during the 2008 financial crisis.
GE said Tuesday that it expects operational costs of about $2 billion related to the split, which will require board approval.
The company also announced Tuesday that it expects to lower its debt by more than $75 billion by the end of the year.
Amazon reports plunging sales, profit as COVID curbs begin to ease
The question now is whether other conglomerates will see their own company structure as a relic of the past.
The decision to break up General Electric, an industrial bellwether, could set into motion similar actions at other large conglomerates with the “urge to demerge,” according to RBC Capital Markets.
“GE’s announcement today could embolden the boards of several other Multi-Industry companies to move ahead on more aggressive portfolio simplification moves, including Emerson, Roper Technologies, and 3M,” analysts with the firm wrote.
Unlike GE, which continued to shed assets this year, all three industrial conglomerates have underperformed the S&P 500 in 2021.
GE rival, Siemens AG, spun off its power division to form Siemens Energy last year.
(With AP inputs)
