Monday, 16 July, 2018

General Electric to spin off its healthcare business

GE to exit health care and oil services businesses Modal Trigger Getty Images
Melissa Porter | 28 June, 2018, 21:28

American Century Companies Inc. now owns 8,938,740 shares of the company's stock valued at $248,229,000 after purchasing an additional 1,176,328 shares in the last quarter.

The iconic maker of light bulbs and jet engines will be replaced tomorrow in the 30-stock index by drug store chain Walgreens Boots Alliance.

Once Berkshire County's largest employer, GE traces its roots to Thomas Edison and the invention of the light bulb.

With the announced sales of Distributed Power, Industrial Solutions, and Value-Based Care, and pending combination of its Transportation business with Wabtec, GE's $20 billion divestiture target is substantially complete. The stock has fallen almost 80% from its highs in 2000. The stock carved out a 52-week low down at $25.53.

The health care spin off marks a major shift by GE, which had previously said health care would remain one of its three big businesses. The health business makes imaging machines and other hospital equipment.

GE Healthcare recorded more than $19 billion in revenues in 2017 and posted 5 percent revenue growth and 9 percent segment profit growth in the same year.

A few weeks ago, Inspirata, a cancer diagnostics company, acquired analytics firm Caradigm from GE Healthcare. The plan is for GE to raise cash by selling a 20% stake and then distributing the remainder to shareholders.

The exact structure and timing will be determined at a later date.

Shares of GE fell about 1.5% in trading Monday, and are down 28% since the beginning of 2018. Former CEO Jeffrey Immelt once said its portfolio was too broad and too opaque.

GE said in a statement Tuesday it will separate GE Healthcare into a standalone company and begin to sell off Baker Hughes. Management experts feel conglomerates need to see in this the need for businesses to continue as conglomerates as long as they can make seemingly different businesses draw synergies and reinforce businesses within the entire entity.

GE has since largely divested GE Capital, but lingering liabilities forced it to take a US$6.2 billion charge previous year, and begin setting aside US$15 billion more in reserves against insurance claims. Total debt, including pension liabilities, has almost tripled since 2013, according to Moody's.

As a stand-alone business, the new company may focus its research and development on medical supplies for the burgeoning genomics field, Haller said.

John Flannery, GE's chief executive, hailed the new corporate plan as a rebirth for the longsuffering company, which he said would slash debts and stabilize its balance sheet as a leaner, more focused enterprise.

GE, however, is not coming back.

The healthcare spinoff is expected to be completed over the next 12 to 18 months. He joined the GE Board as an independent director earlier this year. "Moody's anticipated that the company would need material changes to its business portfolio", the ratings firm said.

The spinoff decision could offer an opportunity for the separate entity to funnel its energy into the most promising areas in which GE Healthcare now operates, Haller said.

The decision to divest does not mean GE dislikes the businesses, he said.

The restructuring is "ultimately a de facto equity raise and dividend cut when all is said and done", he wrote to clients. Things got worse for GE in January, when it disclosed that the Securities and Exchange Commission was investigating the company's accounting after a $6.2 billion loss in its insurance business.

GE Capital will also be pared down by $25 billion.

Yet GE Capital is requiring even more resources from the parent company.

Beleaguered General Electric plans to exit the oil and gas business less than two years after combining its assets with Baker Hughes. So, GE stock is in a transition phase to say the least.