On Tuesday, GE announced its plan to form three global public companies focused on the growth sectors of aviation, healthcare and energy.
This will be accomplished by:
Pursuing a tax-free spin-off of GE Healthcare, creating a pure-play company in early 2023, in which GE expects to retain a stake of 19.9%; andCombining GE Renewable Energy, GE Power and GE Digital into one business, positioned to lead the energy transition, and then pursuing a tax-free spin-off of this business in early 2024.
After these transactions, GE will be an aviation-focused company.
As independently run companies, the businesses will be better positioned to deliver long-term growth and create value for customers, investors and employees, GE said.
“At GE we have always taken immense pride in our purpose of building a world that works. The world demands — and deserves—we bring our best to solve the biggest challenges in flight, healthcare and energy,” said GE Chairman and Chief Executive Officer H. Lawrence Culp, Jr. “By creating three industry-leading, global public companies, each can benefit from greater focus, tailored capital allocation, and strategic flexibility to drive long-term growth and value for customers, investors, and employees. We are putting our technology expertise, leadership and global reach to work to better serve our customers.”
“Today is a defining moment for GE, and we are ready. Our teams have done exceptional work strengthening our financial position and operating performance, all while deepening our culture of continuous improvement and lean. We have a responsibility to move with speed to shape the future of flight, deliver precision health and lead the energy transition. The momentum we have built puts us in a position of strength to take this exciting next step in GE’s transformation and realize the full potential of each of our businesses.”
Culp will serve as non-executive chairman of the GE healthcare company upon its spin-off. He will continue to serve as chairman and CEO of GE until the second spin-off, at which point he will lead the GE aviation-focused company going forward.
Peter Arduini will assume the role of president and CEO of GE Healthcare effective Jan. 1, 2022. Scott Strazik will be the CEO of the combined Renewable Energy, Power and Digital business while John Slattery continues as CEO of Aviation. The respective capital structures, brands and leadership teams for the Healthcare and Renewable Energy and Power independent companies will be determined and announced later.
GE says this plan provides a stronger financial position and stronger business and operating performance.
Through the transition, GE will be able to monetize its stakes in AerCap and Baker Hughes, prioritizing further debt reduction. Each of the three resulting independent companies will be well-capitalized with investment-grade ratings.
After the spin-off transactions, GE will retain other assets and liabilities of GE today, including run-off insurance operations. GE also intends that Healthcare will issue debt securities, the proceeds of which will be used to pay down outstanding GE debt. The transactions are not subject to bondholder consent.
The company expects to incur one-time separation, transition and operational costs of about $2 billion and tax costs of less than $0.5 billion, which will depend on specifics of the transaction. The proposed spin-offs of Healthcare and the Renewable Energy and Power business are intended to be tax-free for GE and GE shareholders for U.S. federal income tax purposes.