Published on 10 Nov 2021 on Zacks via Yahoo Finance

General Electric (GE) to Split Into Three Independent Companies

General Electric Company GE yesterday announced plans to split its businesses into three public companies in tax-free transactions. One of the companies will comprise GE Healthcare, while the other two will include GE Aviation, and the combined businesses of GE Digital, GE Power and Renewable Energy.The market took the news positively, as evident from a 2.65% increase in General Electric’s share price yesterday. The trading closed at $111.29.

Inside the Headlines

As noted, the spin-off business of GE Healthcare will become one of the prime players in the precision healthy industry. The transaction will be complete in early 2023. General Electric will own a 19.9% stake in the spun-off GE Healthcare.Secondly, the combined businesses of GE Digital, GE Power and Renewable Energy will play an important role in the energy transition. The transaction will be completed in early 2024.Lastly, General Electric will comprise its GE Aviation business.The completion of the transactions is contingent upon the receipt of approvals from General Electric’s board of directors, and the fulfillment of other customary closing conditions.The rationale of these spin-offs is to create better values for investors, employees and customers. With solid long-term growth opportunities, the companies will exhibit better operational focus, capital allocation policies, and financial flexibility. Each will have investment-grade ratings.The transactions add vigor to General Electric’s efforts to reshape its portfolio over time. It will also strengthen its existing efforts to improve liquidity, help in cash management, and lower debt obligations. For now, General Electric plans to lower debts by $75 billion from 2018 to 2021, achieve a net-debt-to-EBITDA ratio of < 2.5x in 2023, and gain free cash flow margins of high-single digits in 2023.Also, General Electric will continue to shed its stake in Baker Hughes Company BKR and monetize stakes in AerCap Holdings N.V. AER. Notably, General Electric (on Nov 1) received 111.5 million shares of AerCap Holdings as part of the payment from the combination of its GE Capital Aviation Services business with AerCap Holdings.