Following its strategic review, GE will focus on aviation, power and renewable energy, creating a simpler, stronger, leading high-tech industrial company. In addition to the pending combination of its transportation business with Wabtec, GE plans to separate GE Healthcare into a standalone company, pursue an orderly separation from BHGE over the next two to three years, make its corporate structure leaner and substantially reduce debt. GE’s Board of Directors unanimously approved the plans announced on June 26.
“Today marks an important milestone in GE’s history. We are aggressively driving forward as an aviation, power and renewable energy company—three highly complementary businesses poised for future growth. We will continue to improve our operations and balance sheet as we make GE simpler and stronger,” John Flannery, Chairman and CEO of GE, stated. “GE Healthcare and BHGE are excellent examples of GE at its best—anticipating customer needs, breaking barriers through innovation and delivering life-changing products and services. Today’s actions unlock both a pure-play healthcare company and a tier-one oil and gas servicing and equipment player. We are confident that positioning GE Healthcare and BHGE outside of GE’s current structure is best not only for GE and its owners, but also for these businesses, which will strengthen their market-leading positions and enhance their ability to invest for the future, while carrying the spirit of GE forward,” John Flannery mentioned.
GE of the Future
According to the company’s statement, GE will be a focused high-tech industrial company that will be easier for investors to follow and measure with a significantly improved balance sheet to support its remaining businesses:
- GE Aviation continues to be a leader in the aviation industry. GE technology powers two out of every three commercial departures around the world and GE’s global installed base includes more than 65,000 engines.
- GE’s energy strategy, driven by GE Power and GE Renewable Energy, is based on offering a full range of energy solutions across the electricity value chain that bring affordable, reliable, efficient energy to businesses and consumers. GE powers more than one-third of the world’s electricity and has a valuable installed base of approximately 7,000 gas turbines, with a track record of increasing productivity.
- GE will continue to invest for the future and lead in innovative technologies like additive manufacturing and digital to lead the next wave of industrial productivity.
GE is making fundamental changes to how it will run the company. The new GE Operating System will result in a smaller corporate headquarters focused primarily on strategy, capital allocation, talent and governance. It will result in better execution, increased speed and is expected to generate at least USD 500 million in corporate savings by the end of 2020. Under the new GE Operating System, most resources and services traditionally held at the headquarters level will be realigned to the businesses.
GE is targeting an Industrial net debt-to-EBITDA ratio of less than 2.5 times and a long-term A credit rating. GE also plans to reduce Industrial net debt by approximately USD 25 billion by 2020 and maintain more than USD 15 billion of cash on the balance sheet.
BHGE to focus on leading in the oil and gas industry
GE plans to fully separate its 62.5% interest in BHGE in an orderly manner over the next two to three years. BHGE’s full stream offering brings together equipment, services and digital solutions to help its customers be more productive—a unique and powerful value proposition in a changing market. The separation will provide BHGE with enhanced agility and the ability to focus on leading in the oil and gas industry.
GE Capital – smaller and more focused
GE continues to work to make GE Capital smaller and more focused on supporting its core industrial businesses. The company intends to materially shrink the balance sheet of GE Capital targeting sales of $25 billion in energy and industrial finance assets by 2020. The company is assuming an approximately $3 billion capital contribution to GE Capital in 2019. In addition, the company is actively exploring options to reduce its insurance exposure.
The recent announcements follow a series of changes GE has made in the past year. With the announced sales of Distributed Power, Industrial Solutions, and Value-Based Care, and pending combination of its Transportation business with Wabtec, GE’s USD 20 billion divestiture target is substantially complete.
“GE’s mission and technology change the lives of billions of people around the world. We will now move forward with purpose to make our company simpler and stronger and accelerate growth across our businesses. I’m confident that today’s actions, in conjunction with other changes we have already made, will produce improved operating results and increased shareholder value going forward. We are focused on executing the strategy and implementing the structure we’ve laid out today to position our businesses for future growth,” John Flannery concluded.