GE is shrinking itself even further

CNN/ Newswire | 6/26/2018, 10:32 a.m.
The quickly shrinking General Electric is on the verge of getting much smaller. Cash-strapped GE revealed plans on Tuesday to ...
General Electric

Matt Egan

(CNN Money) -- The quickly shrinking General Electric is on the verge of getting much smaller.

Cash-strapped GE revealed plans on Tuesday to spin off its health care business and sell its stake in oil and gas company Baker Hughes. GE plans to use the proceeds to pay down a mountain of debt accumulated from years of poorly timed deals.

The announcement comes on the first day in 110 years that GE will not be in the Dow Jones Industrial Average. GE was replaced by Walgreens Boots Alliance in the elite 30-stock index Tuesday.

The moves will leave GE, once one of America's great conglomerates, focused on just aviation, power and renewable energy.

"We are making fundamental changes to position our businesses for the future and redefine GE for another century of success," CEO John Flannery said during a call with analysts.

GE has already agreed to sell its century-old rail division and is searching for a buyer of the iconic light bulb unit that Thomas Edison founded. On Monday, GE said goodbye to its distributed power business, which sells equipment used to generate electricity in remote areas. GE has already unloaded NBC Universal, its appliance business and much of GE Capital, the banking division that nearly killed the company during the financial crisis.

Flannery said the remaining businesses are "highly complementary" and "poised for future growth." He pledged to continue to make GE "simpler and stronger" while cleaning up its bloated balance sheet.

Wall Street applauded the move, sending GE's depressed stock 5% higher on Tuesday. GE lost nearly half its value last year and it's plunged another 25% in 2018. The stock is near its lowest level in about nine years.

The health care spin off marks a major shift by GE, which had previously said health care would remain one of its three big businesses. The division makes MRI machines and sells other medical equipment to hospitals and labs. It raked in $19.1 billion of revenue last year, accounting for 16% of the company's total sales.

GE wants to make the health care division a standalone company. The plan is for GE to raise cash by selling a 20% stake and then distributing the remainder to shareholders. As part of the spin-off, GE plans to transfer about $18 billion of debt and pension obligations to the new entity.

The exact structure and timing will be determined at a later date. GE expects to complete the transactions over the next 12 to 18 months.

GE's decision to unload its majority stake in Baker Hughes is a dramatic reversal. Less than a year ago, GE completed the merger of its oil and gas business with Baker Hughes, creating an oil services giant. The Baker Hughes deal was a major bet by former CEO Jeff Immelt.

However, now GE plans to sell its 62.5% stake in Baker Hughes over the next two to three years. Certain restrictions prevent GE from exiting the business before mid-2019.