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General Electric will split into three separate companies in a stunning breakup of the iconic manufacturer founded by Thomas Edison whose sprawling businesses once made it the world’s most valuable company.
GE will spin off its health care business in early 2023 and combine its renewable energy, fossil-fuel power and digital units into a single energy-focused entity that will be spun off a year later, the company said Tuesday.
The remaining company will consist of GE Aviation, its jet-engine division.
“What we’re doing today is creating three outstanding investment-grade, global leaders in health care, aviation and energy,” CEO Larry Culp said in an interview.
“GE has led in these markets for a long time and today we’re setting ourselves up for another century of leadership.”
The Boston-based company said it expects to take a one-time $2 billion charge from separation, transition and operational costs tied to the plan, plus tax costs of less than $500 million.
“The breakup makes strategic sense,” Deane Dray, an analyst with RBC Capital Markets, said in a note.
The breakup could generate 20 percent upside to GE’s current share price, according to Dray’s analysis. There will be “attractive value to be unlocked.”
The sweeping plan marks the end of an era in which conglomerates defined much of 20th century corporate America and follows the break-up of several other large, diversified companies as investors favor focus over breadth.
Dray, in his analyst note, cited 3M, Emerson Electric and Roper Technologies as candidates for possible separations.
In a call with analysts, Culp called the announcement a “defining moment” for GE.
Culp’s vision also is a rebuke of the strategy championed by Culp’s larger-than-life predecessors, including Jack Welch, who famously built the company into a diversified juggernaut with businesses spanning television, finance, energy and many other unrelated markets.
Welch’s successor as CEO and chairman, Jeffrey Immelt, continued to reshape the company over some 16 years starting in 2001, though with notably less success.
One sign of how much GE had fallen by the wayside — 20 years ago, it was the world’s largest company with a market capitalization of $401 billion.
Five years ago it was just hanging on in the top 10. As of Monday, there were dozens with bigger market caps in the S&P 500.
Culp, who previously reshaped Danaher Corp., was tapped as GE’s CEO in October 2018 as the company was facing multiple crises including trouble at its financial services arm and power business.
He moved swiftly to stabilize and turn around the manufacturer, slashing GE’s venerable dividend to a token penny a share.
Culp since sold major businesses to cut GE’s bloated debt, pushed operational fixes to bolster cash flow and profits at its industrial divisions and mitigated the Boston-based company’s risks in a broad retrenching from its once sprawling conglomerate structure, including the sale of the bulk of the GE Capital finance arm.
Each of the three companies that result from the breakup will have its own board of directors.
The stand-alone health care business will be run by GE Healthcare’s incoming CEO Peter Arduini, who currently has the top post at Integra LifeSciences, while Culp will be the business’s non-executive chairman.
GE plans to retain a roughly 20 percent stake in the standalone health care business.
The spinoff will be tax-free.
Longtime GE analyst Nick Heymann of William Blair and Co. said the company’s breakup is as much about the conglomerate model as it is about GE itself.
“In this digital economy, you have to be agile and you have to be able to move quickly,” Heymann said.
“You can’t be burdened down in a three-pontoon boat.”