new York Three years after taking up the helm of US industrial giant General Electric (GE), Lawrence Culp seeks liberation. The Siemens rival, with its 174,000 employees and sales of around 75 billion dollars, will be divided into three listed companies, GE announced on Tuesday.
GE Renewable Energy, GE Power and GE Digital would be spun off together as a unit, and GE Healthcare as another. The aviation division is to be spun off as the third unit. “Today is a pivotal moment for GE and we are ready,” said Culp.
The company remains focused on “further reducing debt, improving our operational performance and strategically deploying capital to generate sustainable, profitable growth.”
The news was well received by investors: the share soared 15 percent before the stock market launch and went on sale in New York with a plus of six percent.
The Group’s share price has developed significantly worse than the market in recent years. With the division into health, energy and aviation, Culp now wants to offer investors more value: “By running each of these areas as an independent company, we can exploit their full potential,” said Culp on Tuesday.
With the split, General Electric is taking a path that other earlier conglomerates such as Siemens, ABB or Philips have also taken. Investors usually reward concentration on one area with a higher rating.
“By creating three industry-leading global public companies, each can benefit from increased focus, tailored capitalization and strategic flexibility to create long-term growth and value for customers, investors and employees,” said Culp.
Culp will lead the aviation division
The aviation division as the remaining main company is to be managed by Culp himself. The GE manager Scott Strazik is to lead the combined business for renewable energies, electricity and digital, Peter Arduini the health business.
With revenues of $ 33 billion, the energy division was the group’s top-selling division last year. The aviation segment achieved a total of 22 billion dollars in sales, the health division 17 billion dollars.
Culp became the first outside manager to head GE in October 2018 to save the staggering industrial icon. Known for his hands-on work style, the manager first made the conglomerate Danaher big before taking on the mammoth task at GE.
The icon of US industry, which goes back to its founding by the inventor Thomas Edison, had got into trouble, especially during the dubious expansion of recent years. The CEOs Jack Welsh and Jeffrey Immelt had invested in various areas from television to finance and thus heavily indebted the group. Culp’s predecessor, John Flannery, had failed in his task and had to vacate his post after a year.
Right from the start, Culp did what no one had dared before him: He lowered the dividend to almost zero in order to create more financial freedom for his major cleaning. Since then, the corona pandemic has also emerged, so that the 58-year-old had to reorganize the already ailing group in the middle of a global crisis that is particularly hard on the aviation sector.
In his three years at the helm, Culp has already changed the company significantly. Culp has withdrawn from several areas in order to reduce the high debt: Among other things, he parted with the biopharmaceutical division and the majority in the oil and gas supplier Baker Hughes. He also sold off the production of lightbulbs, which General Electric had started almost 130 years ago.
Last week he completed the merger of the aircraft leasing division Gecas with that of the Irish competitor Aercap. By the end of this year, GE aims to have reduced its debt by $ 75 billion from 2018 to $ 65 billion.
With the complete split comes the big hit that many investors have obviously been waiting for. The health division is to be spun off at the beginning of 2023, the energy division is to follow in early 2024.
Culp justifies the fact that the digital business ends up in energy and renewable energies with the fact that the division is already primarily active in the field of power grids. “It’s an easy, natural decision to put it there,” Culp said in a conference with analysts. The digital business has sales of more than one billion dollars and is currently based at the headquarters.
Analysts praise the split
The new course has been well received by analysts: “The move involves costs, but the agility of three focused companies is likely to be seen as an opportunity that can more than make up for any costs,” writes Wells Fargo analyst Joseph O’Dea on Tuesday.
Culp also received praise from activist investor Nelson Peltz’s Trian hedge fund. He has been investing in GE for years and has long been calling for the conglomerate to split up. “We salute GE CEO Larry Culp and his team’s drive to add long-term value to shareholders,” said Trian.
GE is to position itself even more strongly as a service provider in all sectors. This applies to wind turbines as well as to medical devices or aircraft turbines. Culp was confident that, especially in the aviation division, the service area will already be contributing more to sales in the coming months: “Many machines will soon have to be inspected,” he said.
Finance director Carolina Dybeck Happe also stated that the commercial aviation business is currently recovering. “There GE can still earn a lot from service,” she is also convinced
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