General Electric's Demise

Issue 97

General Electric, one of the first American Conglomerate’s fate is to now be chopped up by the sharks.  GE’s decision to split into three companies has set the stage for a feeding frenzy among private equity buyers looking to carve the industrial conglomerate into more pieces, say people at several large private equity groups.

Larry Culp, GE’s chief executive, last Tuesday announced the decision to break the company into separate companies focused on healthcare, energy and aviation. The split, he said, would give each GE business freedom to chart its own strategy or so they thought.  The company has been thrown into dire straits since the departure of its once lauded superstar CEO Jack Welch.  Well before the onset of the great financial crisis, the company had prioritized it’s focus away from its heavy industries business and plunged into risky derivative bets leaving the company weak and ripe for disarray, followed by the scandal of internal financial fraud.

GE on Tuesday said it would spin off its healthcare business, which generates more than $17bn in annual sales and sells MRI and ultrasound machines. It will carve out its combined renewable energy and power divisions, which contain units that do everything from manufacture gas turbines to manage nuclear facilities, hydroelectric dams, and offshore wind farms. It will leave shareholders owning an aviation company that manufactures jet engines and also holds long-term care insurance liabilities. The company sold policies covering assisted living and nursing home stays as part of its GE Capital financial services division, which is being unwound. The policies, like many of GE’s financial forays, have lost the company billions. But the long time frame of Culp’s plan will offer interested buyers the ability to pick assets off a weaker GE.

Source: Financial Times