(New York) The American conglomerate General Electric, co-founded more than 130 years ago by Thomas Edison, opened a new chapter in its history on Tuesday: its split into three independent companies, to allow them to concentrate on their core businesses. very disparate.
The group announced its “spin-off” project in November 2021, in several stages. A first split took place in January 2023 with the creation of GE Healthcare, bringing together all healthcare activities.
The last stage materialized on Tuesday, with the formalization of the final separation which resulted in the disappearance of General Electric in favor of GE Vernova (energy activities) and GE Aerospace, the new name of the late GE.
Their leaders rang the opening bell on Tuesday for the session of the New York Stock Exchange, where they are all listed.
Around 12 p.m. ET, GE Vernova gained 3.85%, GE Aerospace gained 1.86% and GE Healthcare lost 0.68%.
These three separate companies have their own governance and will each publish their results. Without any holding over them.
“With the successful launch of the three independent and publicly traded companies now complete, today marks a historic final milestone in GE’s multi-year transformation,” commented Larry Culp, CEO of GE Aerospace and president of GE Vernova, and former CEO of GE. , quoted in a press release.
Among the “many reasons” for these splits, analyst Neil Saunders of GlobalData cites a desire for simplification, by getting rid of ancillary activities, or performance, by withdrawing from sectors with low growth or profitability.
“Behind all this, there is generally a valuation objective which either benefits the share price or creates value for investors and owners,” he emphasizes.
And, according to him, “managing several divisions with very disparate activities is more difficult for a board of directors […] and to convey a strategic vision to investors.”
The split is also the path taken by the conglomerate 3 m, manufacturer of tape and Post-its, among others. It announced, in July 2022, the separation of its health-related activities.
Capital allocations
The new company, called Solventum, began trading on the New York Stock Exchange (NYSE) on Monday.
“This is an important day for 3m and for Solventum,” commented Mike Roman, boss of 3M, quoted in a press release. “Both companies are positioned to continue their respective growth and capital allocation plans,” he added.
Like GE, which distributed all of the shares of GE Vernova to the conglomerate’s shareholders, 3M distributed all of the shares of the new company among its shareholders.
But it can happen that the “parent company” retains a stake, often with the intention of monetizing it later. This is what General Electric did with GE Healthcare, in which it kept 19.9% of the capital.
According to a spokesperson for the group, it is now only 6.7% and now belongs to GE Aerospace, which “does not intend to keep it perpetually”.
For the McKinsey firm, a side activity that has become independent can develop further by doing business with companies competing with its former “parent company”.
Other big names on Wall Street have also chosen in recent years to divest themselves of certain activities through spinoffs.
For example, the giant Johnson & Johnson retained activities for professionals and created Kenvue, a listed company, in February 2022 for its consumer products.
“Disadvantages”
In June 2021, breakfast giant Kellogg revealed its intention to split into three companies, but ultimately opted for only two: WK Kellogg (cereals) and Kellanova (snacks), which were born in October 2023.
“This is a good example of a company separating its low-growth cereal business from the very high-growth snack business,” notes Neil Saunders, but there may be “disadvantages.”
In particular the loss of economies of scale resulting from the sharing of certain structural functions (accounting, human resources, etc.) or from an effect of size (health insurance).
According to the CNBC channel, some thirty-six “spin-off” operations are planned around the world in 2024.
The British hygiene and food giant Unilever announced on March 19 its intention to sell its ice creams – including Ben & Jerry’s and Magnum – due to disappointing sales in 2023.
“A split” with a stock market listing “is the most likely path to separation,” Unilever then clarified, saying it was seeking above all to “maximize returns for shareholders.”
This time, according to Neil Saunders, the aim is simplification, because ice cream operates with “a very different operating model” to Unilever’s other products.