News

For nearly 130 years, General Electric has been one of the largest manufacturers in the United States. Now it is falling apart.
As a symbol of American ingenuity, this industrial power has put its own mark on products ranging from jet engines to light bulbs, kitchen appliances to X-ray machines. The pedigree of this conglomerate can be traced back to Thomas Edison. It was once the pinnacle of commercial success and is known for its stable returns, corporate strength and unremitting pursuit of growth.
But in recent years, as General Electric strives to reduce business operations and repay huge debts, its extensive influence has become a problem that plagues it. Now, in what Chairman and CEO Larry Culp (Larry Culp) called the “decisive moment”, General Electric has concluded that it can unleash the most value by breaking down itself.
The company announced on Tuesday that GE Healthcare plans to spin off in early 2023, and the renewable energy and power divisions will form a new energy business in early 2024. The remaining business GE will focus on aviation and will be led by Culp.
Culp said in a statement: “The world demands-and it is worth-we do our best to solve the biggest challenges in flight, healthcare and energy.” “By creating three industry-leading global listed companies, each company Both can benefit from more focused and tailored capital allocation and strategic flexibility, thereby driving the long-term growth and value of customers, investors and employees.”
GE’s products have penetrated into every corner of modern life: radio and cables, airplanes, electricity, healthcare, computing, and financial services. As one of the original components of the Dow Jones Industrial Average, its stock was once one of the most widely held stocks in the country. In 2007, before the financial crisis, General Electric was the world’s second-largest company by market value, tied with Exxon Mobil, Royal Dutch Shell and Toyota.
But as American technology giants take on the responsibility of innovation, General Electric has lost the favor of investors and is difficult to develop. Products from Apple, Microsoft, Alphabet, and Amazon have become an integral part of modern American life, and their market value has reached trillions of dollars. At the same time, General Electric was eroded by years of debt, untimely acquisitions, and poorly performing operations. It now claims a market value of approximately $122 billion.
Dan Ives, managing director of Wedbush Securities, said that Wall Street believes that the spin-off should have taken place long ago.
Ives told the Washington Post in an email on Tuesday: “Traditional giants such as General Electric, General Motors, and IBM have to keep up with the times, because these American companies look in the mirror and see lagging growth and inefficiency. “This is another chapter in GE’s long history and a sign of the times in this new digital world.”
In its heyday, GE was synonymous with innovation and corporate excellence. Jack Welch, his otherworldly leader, reduced the number of employees and actively developed the company through acquisitions. According to Fortune magazine, when Welch took over in 1981, General Electric was worth 14 billion U.S. dollars, and he was worth more than 400 billion U.S. dollars when he left office about 20 years later.
In an era when executives were admired for focusing on profits rather than looking at the social costs of their business, he became the embodiment of corporate power. The “Financial Times” called him “the father of the shareholder value movement” and in 1999, “Fortune” magazine named him the “manager of the century”.
In 2001, management was handed over to Jeffrey Immelt, who overhauled most of the buildings built by Welch and had to deal with huge losses related to the company’s power and financial services operations. During Immelt’s 16-year tenure, the value of GE’s stock has shrunk by more than a quarter.
By the time Culp took over in 2018, GE had already divested its home appliances, plastics and financial services businesses. Wayne Wicker, Chief Investment Officer of MissionSquare Retirement, said that the move to further split the company reflects Culp’s “continuous strategic focus.”
“He continues to focus on simplifying the series of complex businesses he inherited, and this move seems to provide investors with a way to independently evaluate each business unit,” Wick told the Washington Post in an email. “. “Each of these companies will have their own board of directors, which may focus more on operations as they try to increase shareholder value.”
General Electric lost its position in the Dow Jones Index in 2018 and replaced it with the Walgreens Boots Alliance in the blue chip index. Since 2009, its stock price has fallen by 2% every year; according to CNBC, in contrast, the S&P 500 index has an annual return of 9%.
In the announcement, General Electric stated that it is expected to reduce its debt by 75 billion U.S. dollars by the end of 2021, and the total remaining debt is approximately 65 billion U.S. dollars. But according to Colin Scarola, an equity analyst at CFRA Research, the company’s liabilities may still plague the new independent company.
“The separation is not shocking, because General Electric has been divesting businesses for years in an effort to reduce its over-leveraged balance sheet,” Scarola said in an emailed comment to the Washington Post on Tuesday. “The capital structure plan after the spin-off has not been provided, but we would not be surprised if the spin-off company is burdened with a disproportionate amount of GE’s current debt, as is often the case with these types of reorganizations.”
General Electric shares closed at $111.29 on Tuesday, up nearly 2.7%. According to MarketWatch data, the stock has risen by more than 50% in 2021.