By announcing Tuesday the split of its activities, General Electric (GE) will cease to exist as a conglomerate, closing a chapter of one of the greatest industrial adventures in the history of the United States.
GE will make way for three separate companies listed on the stock exchange, which will respectively specialize in aviation, health and energy.
This decision is the logical consequence of slimming treatments carried out for several years to face a colossal debt and a series of bad strategic choices of the company.
“We have a responsibility to act quickly to shape the future of aviation, advance precision medicine and guide the energy transition,” said Lawrence Culp, CEO of GE, at a conference telephone.
Concretely, GE intends to create a new entity in early 2023 from its healthcare equipment division, in which it will retain a 19.9% stake. The activities related to renewable energies and wind turbines, gas and steam, will be grouped into a single company from the beginning of 2024.
Following these transactions, the name “General Electric” will be retained to designate a third company, specializing in aviation, a crucial sector for GE, which manufactures reactors and engines, in particular for Boeing.
Wall Street reacted well to the announcement of the split, the share of GE, listed on the Nasdaq, rising nearly 4%, to $ 112.40, around mid-session. The agency S&P Global Ratings, however, indicated that it was considering lowering the rating of GE, judging that the separation into three entities would make the group “less diversified”. “We could lower the rating if the loss in diversification is not sufficiently offset by reducing debt and improving financial results,” S&P warned.
To achieve its ends, GE could seize an opportunity in the nuclear industry through the new company specializing in renewable energies, said Peter McNally of Third Bridge. “In the United States, the decline in the number of nuclear plants has leveled off and existing plants are seeing their life cycle extended thanks to remarkable reliability and an increasing demand for energy,” said McNally. .
“While nuclear power is still controversial in some parts of the world, we are seeing the number of installations increasing in places like Eastern Europe or the Middle East,” he added.
Misfires
Created at the end of the XIXe century by Thomas Edison, General Electric has long represented one of the flagships of American industry, with a presence in many sectors, from electricity transmission to finance, including the media and IT. We owe him, among other things, the popularization of the electric bulb with filament, the fluorescence lamp, the radio transmission, the refrigerator, the silicone, the aircraft engine, the automatic piloting of planes and the civilian nuclear reactor. . Until the early 2000s, and before the advent of technological giants like Apple, Amazon or Google, the conglomerate even held, on various occasions, the largest capitalization on Wall Street, weighing almost $ 600 billion.
But the Boston-based company paid a heavy price for failed acquisitions, including that of mortgage company WMC in 2004 and the Energy division of French multinational Alstom in 2015.
The financial branch of GE, for its part, suffered the blow in 2008, at the height of the so-called crisis of ” subprime ”, Due to risky investments in commercial real estate.
The company was removed in 2018 from the Dow Jones, a benchmark index on Wall Street, of which it had been a member for 111 years.
Mr. Culp was appointed head of GE in October 2018 in an attempt to raise the bar, including committing to debt relief for the company.
On Tuesday, GE recalled its goal of reducing that burden by $ 75 billion by the end of 2021 compared to the end of 2018, when the debt stood at $ 110 billion.