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GE to split into healthcare, energy and aviation companies

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General Electric plans to break into three separate companies, effectively ending its status as America’s best-known industrial conglomerate after years of trying to respond to flaws in its model exposed by the financial crisis.

The split into three public companies focused on healthcare, energy and aviation marks the final step in the undoing of the sprawling group created by Jack Welch at the end of the last century.

It is also the boldest move yet by chief executive Larry Culp in his years-long effort to streamline the diversified company, which has faced growing investor pressure over its underperformance.

Shares in GE jumped more than 10 per cent in pre-market trading as investors welcomed the move, which will make it easier for them to decide which of the businesses they want to back.

GE Healthcare will be spun off in 2023, with GE retaining a 19.9 per cent stake in the unit. GE Renewable Energy, GE Power and GE Digital will be combined into one energy-focused company that will be spun off in 2024. Once these transactions are completed, the original GE will focus on aviation.

“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,” said Culp.

“Today is a defining moment for GE, and we are ready . . . And we’re not finished — we remain focused on continuing to reduce debt, improve our operational performance and strategically deploy capital to drive sustainable, profitable growth,” he added.

Under the stewardship of former chief Welch, GE became the world’s largest company, praised for its managerial efficiency and steady profit margins, making it a darling of US investors.

But successive chief executives have been restructuring GE since it ran into severe difficulties during the global financial crisis, exposing the risks of a group that once produced everything from television shows to jet engines and ultrasound machines.

Culp, in particular, has sought to shrink GE to control its debts. GE this year sold its aircraft leasing business to Irish group AerCap in a $30bn deal. Before him, Jeff Immelt and John Flannery sold vast swaths of the group, including GE Capital, its property assets and the insurance business.

GE said on Tuesday that the changes came on the back of a strengthened financial position, including a more than $75bn reduction in gross debt between 2018 and 2021. All three new companies would have investment-grade credit ratings, the group said.

GE had been shedding assets for more than a decade before Culp became chief in 2018, but he has accelerated the pace of disposals, particularly from the troubled GE Capital arm, which once dominated the group.

During the financial crisis, pressures on its financial services arm prompted GE to seek a bailout from Warren Buffett. The experience led the then chief Jeff Immelt, the successor to Welch, to say that conglomerates worked well until markets turned, when their complexity became a liability.

“For more than a century, GE people have done great things, and I am certain they will continue to do so in the future,” Immelt told the Financial Times on Tuesday. “I wish everyone at GE great success.”

Activist hedge fund Trian Partners built a $2.5bn stake in GE in 2015, its largest position at the time, and Ed Garden, the firm’s chief investment officer, was nominated to the board in October 2017.

The activist fund, which had pushed for cost reductions and increased borrowing to help fund share buybacks, forecast at the time that GE shares would be worth as much as $45. However, GE’s performance fell significantly short of the targets set by Trian, and by the start of 2018, the value of its stake had more than halved. The fund started trimming its position a year later and now holds about half a billion dollars worth of shares.

Nelson Peltz, the billionaire founder of Trian, has previously said that holding on to the firm’s large stake in GE had been a “big mistake”.

Trian said in a statement on Tuesday that it “enthusiastically supports this important step in the transformation of GE.

“The strategic rationale is clear: three well-capitalised, industry leading public companies, each with deeper operational focus and accountability, greater strategic flexibility and tailored capital allocation decisions. We salute GE CEO Larry Culp and his team’s efforts in driving long-term shareholder value.”

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