Published: Thu, June 28, 2018
Medicine | By Tracy Klein

GE narrows focus again, sheds health care and Baker Hughes

GE narrows focus again, sheds health care and Baker Hughes

The industrial giant disclosed on Tuesday that it intends to "fully separate" Baker Hughes (BHGE) by completely divesting its 62.5% stake in the latter within the next two to three years as part of a strategic review to focus on its aviation, power and renewable energy businesses, with healthcare to be split off into a separate entity. GE was an original component in the Dow back in 1896 and had been a continuous member since 1907.

The company became nearly unmanageable.

The company said in a statement that it's reducing its debt by $25 billion.

GE will sell about 20 percent of its health-care business and distribute the rest to its shareholders over the next 12 to 18 months.

"This is really the culmination of 10 years of observations I've had about the company", said Chief Executive Officer John Flannery, a GE veteran who took the helm in August with a mandate to revamp the company. Baker Hughes will be separated over the next two to three years. All told, GE expects to deliver another $500m of corporate savings by 2020 as it moves towards a "much smaller" corporate headquarters in Boston.

Standard & Poor's warned that it could downgrade GE's credit - already in junk status - by one more notch.

"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", the manufacturer said in the statement.

Flannery, upon taking over the company just over a year ago, vowed to divest $20 billion in assets. The shares jumped 7.4 percent to $13.69 at 10:02 NY after climbing as much as 8 percent for the biggest intraday gain in three years. Before Tuesday, the shares had plunged 60 percent since the start of 2017 despite efforts by Immelt and then Flannery to reverse the slide. Before Tuesday's rebound, the slump had wiped out more than $160 billion in shareholder value. The company also is exploring options to reduce its insurance exposure. In April, retirees and union workers picketed outside GE's annual meeting. When Flannery's done, GE will bear little resemblance to the conglomerate that used to count NBC, home-appliances, plastics and a sprawling finance unit among its holdings.

GE said at the time it would take a $6.2 billion charge and set aside $15 billion to pay obligations held by its financial unit.

On Monday, GE said it agreed to sell its gas-engine business for about $3 billion, and it previously agreed to merge its 111-year-old business of building railroad locomotives with Wabtec in a deal to raise $2.9 billion for GE. Meanwhile, the other company rounding out the Big Four in radiology - Royal Philips Electronics - has essentially become a pure-play healthcare firm centered around its Philips Healthcare division by selling off any businesses that aren't related to medical.

The news came as a shock throughout the radiology business, where an adage among purchasing managers once claimed "You'll never get fired for buying GE" - a testament to the company's reputation and staying power. It will be even more removed from consumers, catering instead to other big companies like airplane makers and utilities.

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