GE Whiz

Ongoing changes at General Electric may make one’s head spin

Like a jet engine emblazoned with the company’s logo being installed on a 747 aircraft, the ideology, approach, and structure of General Electric Co. remain in a constant spinning motion. Don’t be alarmed if it’s making your head do the same.

GE has been in flux for the past few years—roughly—and a major part of this has been restructuring its businesses. The latest: it will exit the healthcare and oil markets, the company announced June 26. This move, “the most dramatic yet by CEO John Flannery to pull the fallen corporate titan from a deepening crisis,” said Bloomberg’s Richard Klough and Phil Serafino, will narrow the company’s focus to power, renewable energy, and jet engines. It will spin off its medical-equipment business and sell its majority stake in oilfield supplier Baker Hughes.

Remember when GE was the name in American appliances, buying up its competitors, and a constant fixture on NBC’s “30 Rock”, a company it once owned? Sadly, those days are waning. The latest in a continuation of changes spearheaded by Flannery’s appointment last year will “fundamentally reshape an icon of American business,” Kough and Serafino said. GE is currently experiencing one of its worst financial slumps in a 126-year history, marked most ominously by cutting its dividend and being dropped from the Dow Jones Industrial Average.

“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 a statement Tuesday. GE plans to reduce net debt by about $25 billion by 2020, the Boston-based company said.

Positive news? The move seemed to go smoothly with investors, as the shares jumped 5.9% to $13.50 in pre-market trading. GE fell 27% this year through Monday, following a 45% decline last year — a slump that led overseers of the Dow to kick GE out of the blue-chip index it had been in for more than 100 years.

Trian Fund Management, which holds a stake in GE and has a seat on the board, said it welcomed the moves. “Trian supports the strategic initiatives announced today by GE and believes that these initiatives will create substantial value for shareholders,” the fund led by investor Nelson Peltz said in an emailed statement.

Under the plan unveiled Tuesday, GE will sell 20% of the health business and spin off the rest to its shareholders tax-free. The health business makes imaging machines and other hospital equipment.

The exit from health care mirrors a similar move by Siemens AG, the German industrial giant that’s dramatically simplified its conglomerate structure in recent years. The Munich-based manufacturer, which competes with GE in areas such as power-generation and medical scanners, sold shares in its Healthineers subsidiary in March, marking the country’s second-biggest initial public offering in almost two decades.

The U.S. and European manufacturing titans have historically tracked each other’s business closely, with close competition in power turbines, household appliances, medical devices and light bulbs, Bloomberg’s finance writers noted. Siemens today is a far leaner business than it was a decade ago, having cut ties with some historic assets such as its communications business and the Osram light-bulb business.

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