General Electric (GE 13.78, +1.03, +8.08%) announced
the results of its strategic review. and detailed in a press release this
morning the planned separation of its GE Healthcare business and the sale of
its stake in Baker Hughes. Today’s announcement is expected to generate about
$500 mln in corporate savings by the end of 2020. Walgreens Boots Alliance (WBA)
replaced General Electric as a component of the Dow Jones Industrial Average, a
spot GE held for more than a century.
Today’s news comes six months after General Electric announced the separation of GE Capital's run-off insurance business and subsequent suspension of its dividend “for the foreseeable future.” Yesterday morning, General Electric confirmed a deal to sell its Distributed Power unit to Advent International for $3.25 bln. Shares had lost nearly 27% YTD into today’s action, and management has begun to correct some areas which may have led to such steep losses for the once Dow Jones Industrial Average-listed company. The latest story in this transformation, today’s Healthcare sale and the Baker Hughes divestiture, take the stock about 6.9% higher.
Separation of GE Healthcare
GE is planning on to focus on Aviation, Power, and Renewable Energy by separating GE Healthcare into a standalone company. This will be in addition to the pending combination of its Transportation business with Wabtec (WAB).
The business provides medical imaging (including contrast agents), monitoring, biomanufacturing and cell therapy technology, leveraging deep digital, artificial intelligence and data analytics capabilities. In 2017 GE Healthcare recorded over $19 bln in revenues and posted 5% revenue growth and 9% segment profit growth in the same year.
GE expects to generate cash from the disposition of around 20% of its interest in the Healthcare business and to distribute the remaining 80% to GE shareholders through a tax-free distribution. The deals are expected to be completed in the next 12-18 months but details transactions will be determined and announced at a later date. GE Healthcare will conduct business as usual.
GE expects to maintain its current quarterly dividend until GE Healthcare is separated and a dividend will be determined for that new company as well as a different one for GE.
Baker Hughes Stake
As a way to focus on being a strong part of the oil and gas industry, General Electric is planning an orderly separation of its 62.5% interest in Baker Hughes during the next two to three years.
Following the planned business moves, 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 about $25 bln by 2020 and maintain more than $15 bln of cash on the balance sheet.
The company also announced its entry into a $19.8 bln credit facility with six banking organizations which matures on December 31, 2020. GE entered into the Unsecured Credit Facility to increase its total effective amount available from about $37.5 bln to approximately $40 bln and to extend the duration of its unsecured credit facilities to align with the execution timeline for the new strategic plan.
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