GE return to its roots, decides to hive off its finance business and other assets to hasten slimmingRaymond Billings (Author) Published Date : Apr 11, 2015 18:37 ET
For several decades, GE was happy adding enormous profits to its kitty from the finance arm even as it swelled into one of the biggest lenders in the county.
But with banking business becoming less profitable and increasingly riskier, GE has embarked on a transformation that it began in the midst of the financial crisis and is now selling off most of its finance division over the next two years.
The first tranche of this will start with the sale of real estate assets worth $26.5 billion and move on course to regain its status as one of the mightiest among industrial companies around the globe focusing on jet engines, medical devices and oil drilling equipment among others.
The move announced on Friday also reflects the way the landscape is shifting in the financial world, particularly with regard to large players. The larger the company, the greater is the regulatory scrutiny and investors and analysts have for long been seeking trimming of GE s operations or a break up. Some of the other players, who were traditionally engaged in trading, are now shifting their focus to other pastures like wealth management since the sheen on trading is now fading. Therefore, GE s present move to engage in a re-evaluation of its role in the present ecosystem does not come as a surprise.
GE has codenamed the divestiture campaign as Hubble and will be put together in under six weeks. Consequently, it will erase one of the main legacies of John F Welch Jr., the vaunted former Chief Executive of the conglomerate. At the same time it will also act as a recognition that manufacturing as opposed to finance, represents the future of the company.
We re not sentimentalists, Jeffrey R. Immelt, the multinational s current chairman and chief executive, said in an interview.
The expansive campaign by GE will usher in other changes as well. In shrinking its intercontinental empire, it will also bring back $36 billion in cash that is presently residing overseas, but will take a tax burden of $6 billion in the process.
The significant range of asset sale will in turn bring huge returns to shareholders and current estimates by GE put it at about $90 billion. Another $50 billion will be added from stock repurchase, which incidentally will also be the biggest on record.
Shareholders welcomed the announcement and translated the appreciation with a 11% jump in GE s share price to $28.51, a price level not seen since the financial crisis.
For a company that has its operations spread across nearly every part of the globe and employee as many 305,000 people, downsizing is no mean effort. But, GE has possibly taken a leaf out of the Lehman Brothers fall in 2008 and its own experiences during the financial crisis that rattled the globe.
GE return to its roots, decides to hive off its finance business and other assets to hasten slimming