General Electric (GE) to split into 3 public companies; focus on Aviation, Health & Energy

American multinational conglomerate General Electric on Tuesday, 9 November announced the splitting itself into three public companies. According to the statement released by the electric giant, the company is now trying to focus on aviation, healthcare and energy. The newly ventured will be called-- GE Aviation, GE Healthcare and GE Renewable Energy and Power. The company said that it plans a spinoff of its healthcare business in early 2023 and of its energy segment in early 2024. Notably, a Corporate Spinoff is a state when an organisation creates a new independent company by selling or distributing new shares of its existing businesses. 

As per the release, the electric giant expects to keep a 19.9% stake in the healthcare unit. Also, it said that it anticipates reducing its deficit by more than $75 billion by the end of this year. "Combining GE Renewable Energy, GE Power, and GE Digital into one business, positioned to lead the energy transition, and then pursuing a tax-free spin-off of this business in early 2024," according to a statement released by GE. "Following these transactions, GE will be an aviation-focused company shaping the future of flight," it read.

Bring our best to solve biggest challenges: GE Chairman

Meanwhile anticipating the company's future, GE Chairman and CEO H. Lawrence Culp, Jr. said, “At GE we have always taken immense pride in our purpose of building a world that works. The world demands—and deserves—we bring our best to solve the biggest challenges in flight, healthcare, and energy. By creating three industry-leading, global public companies, each can benefit from greater focus, tailored capital allocation, and strategic flexibility to drive long-term growth and value for customers, investors, and employees. We are putting our technology expertise, leadership, and global reach to work to better serve our customers."

As per today's announcement, Culp will be the non-executive chairman of the healthcare company. Peter Arduini will serve as president and CEO of GE Healthcare effective 1 January 2022. Scott Strazik will become CEO of the combined renewable energy, power, and digital business. Culp will lead the aviation business along with John Slattery, who will remain its CEO.

Significance of Split

Co-founded by Thomas Edison in the late 19th century, GE evolved into an iconic American company with a track record of innovation. However, in the last decade, the organisation has been facing hardships in persevering its earlier stature. It has been trying to find ways to shed units and cut its massive debt. Therefore, the recent announcement could be seen as a major step taken by the company to regain its earlier stature. It could be well understood by the statement of GE Chairman and CEO. He said, "We’re not finished—we remain focused on continuing to reduce debt, improve our operational performance, and strategically deploy capital to drive sustainable, profitable growth." According to the company's statement, the announcement means deeper operational focus, accountability, and agility to meet customer needs.

History and controversies

Thomas Alva Edison was an inventor and businessman who has been described as America's greatest inventor who co-founded the company in the late 19th century. Over time, its reach expanded across a range of industries, with products including home appliances, medical devices and aeroplanes. It is worth noting that General Electric ranked among the Fortune 20 as the 14th-most profitable company. However, with several wrong decisions, the market its profitability collapsed by 75% in 2011. Later, in 2019, a whistleblower accused General Electric of practising accounting gimmicks to conceal the extent of its monetary difficulties and called it a bigger fraud than Enron. A report published by the whistleblower said GE was hiding nearly $40 billion of losses in its insurance business. He said this is the largest case of accounting fraud he and his team had investigated. The report severely impacted the already debt-ridden electric giant. In 2020, GE's ranking slipped tremendously and managed to stand in the queue of the Fortune 500. From being a 14th-most profitable company, it became the 33rd largest firm in the United States in 2020.

Image: AP