[Asia Economy Reporter Yujin Cho] After six years of harsh restructuring, the American company General Electric (GE) is embarking on a survival competition through a three-way split. Once a symbol of American manufacturing, GE has undergone corporate-level restructuring due to repeated setbacks caused by reckless business expansion and financial sector failures. The company will be divided into three firms focusing on aviation, energy, and healthcare, each competing for survival, but market reactions are mixed.
According to the Wall Street Journal (WSJ) and others on the 2nd (local time), GE Healthcare, which is being spun off from GE, will begin trading under the ticker 'GEHC' on the Nasdaq market on the 4th. WSJ reported that Peter Arduini, CEO of GE Healthcare, will hold a bell-ringing ceremony in front of the headquarters in Waukesha, Wisconsin, to mark the new start.
The corporate split will take place after the market closes on the 3rd, and GE Healthcare will be immediately included in the S&P 500 index upon relisting. Based on expected earnings for next year, GE Healthcare’s corporate value is estimated at $48 billion (approximately 61 trillion KRW). The continuing entity GE is valued at $94 billion, and GE Vernova, the energy division (power and renewable energy) scheduled for spin-off early next year, is valued at $13 billion.
Last November, GE announced the corporate split into separate entities for aviation, energy, and healthcare, and this spin-off and relisting of GE Healthcare is the first step. The continuing entity, focused on aircraft engine manufacturing, will change its name to 'GE Aerospace' and plans to hold a 19.9% stake in GE Healthcare. GE’s stock price closed at $83.79 on the 30th of last year, up 37% from the low of $61.09 on July 14 of last year.
Market evaluations of GE Healthcare’s spin-off and relisting are divided. Some view the three-way split as an opportunity to revalue GE’s worth, while others believe that shedding GE’s corporate identity will lead to a corporate split discount that could dampen investor sentiment.
Scott Davis, an industry analyst at Melius Research, said, "The decision to split the company simplifies the business structure, reduces debt, and could act as a positive factor for recovering earnings and the collapsed stock price." He added, "The three-way spin-off and relisting will attract new investments and serve as an opportunity to revalue each business unit." The separation from the renewable energy business, which had caused financial risks due to years of operating losses, is seen as a positive for the stock price.
On the other hand, Nigel Co, an analyst at Wolfe Research, pointed out, "Since 80% of GE’s current corporate value is concentrated in the aircraft engine division, investor interest will remain focused on GE’s aircraft engine business even after the spin-off."
WSJ assessed that the spin-off and relisting of GE Healthcare marks the end of the company-wide restructuring efforts that have been ongoing since 2017. During the COVID-19 pandemic, GE’s sales plummeted due to supply chain disruptions, and as debt reduction reached its limits, the company faced a crisis threatening its very survival, prompting the three-way split as a self-help measure.
Helmut Zdarlik, GE’s Chief Financial Officer (CFO), recently stated at an investor meeting, "After the spin-off, GE Healthcare aims to reduce debt and costs and achieve an operating profit margin in the 20% range, securing a competitive edge over rivals." As of the third quarter of last year, GE Healthcare recorded cumulative sales of $13.5 billion and operating profit of $1.9 billion.
Founded in 1892 by Edison as an electric consumer goods business, GE grew into the world’s largest manufacturer by expanding into almost every field that could be powered by electricity, including home appliances, medical devices, aircraft and automobile engines, nuclear fuel, and nuclear power plants. However, as poor performance intensified due to the backlash from its sprawling expansion strategy, GE has continued high-intensity restructuring of its core businesses, including the electric consumer goods division, which was once symbolic of the group.
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