General Electric plans to split into three companies

General Electric, the iconic industrial company of the end of the 20th century, once a powerful conglomerate renowned for its management prowess, is definitely breaking with its historic past.

The 129-year-old company announced on Tuesday that it plans to split into three publicly traded companies, a remarkable change for a company whose reach in American life once stretched from light bulbs in the home to the engines of jet planes. .

On a conference call with analysts, H. Lawrence Culp, an outsider appointed chief executive three years ago, described the planned split as a “defining moment” for GE and the culmination of its efforts to remake it as a ‘more focused, simpler and stronger high-tech industrial enterprise.

GE’s plan is to split its healthcare division in early 2023 and its energy business a year later. This would leave his aviation unit as a remaining business, which would continue to be led by Mr. Culp.

Speaking to analysts, Culp also described the move as being in step with the times, as other industrial conglomerates have rationalized. The fallout plan, he said, “strengthens focus and responsibility” and “makes everyone better.”

Industrial conglomerates have fallen somewhat out of favor. In recent years, GE’s big German rival, Siemens, has split its healthcare and energy businesses. And Honeywell International, another large industrial company, has sold some of its operations. But none have undergone as drastic an overhaul as GE had anticipated.

In its heyday, GE’s corporate empire was fueled by rising profits. For years, he used that money to expand into new businesses. She owned NBC, powered locomotives, and developed medical imaging technology. Its complexity was part of the company’s sales pitch to investors.

GE also made frames. The company has become a training ground for them, creating a growing cadre of star managers. They were selected, trained and moved from one company to another every few years.

Ambitious young people have flocked to the company to work there, whether for a long career or for just a few years. Former GE managers have held leadership positions in many US companies.

But in some ways, the downfall of the business was due to mismanagement. Under Jack Welch, its leader for two decades until 2001, GE formed a huge financial arm. The assumption was that the executives at GE were the best in the world and that it was easy to make money on Wall Street.

The buildup backfired when the financial crisis hit in 2008, putting GE into a credit crunch. Its managing director at the time, Jeffrey R. Immelt, decided to significantly reduce the large financial unit, GE Capital.

Other businesses have also struggled with the financial crisis, and some Wall Street businesses have collapsed. But few people outside Wall Street are still paying a price like GE Struggles and surprises continued in the financial sector and in a large power generation company, which overdeveloped and misinterpreted demand.

Over time, analysts say, size has worked against the business as bureaucracy has undermined the agility of the business.

“GE was caught in the past, and now it’s the end, it’s over,” said Scott Davis, managing director of Melius Research, an independent financial analysis firm.

In 2017, John Flannery, a longtime GE director, replaced Mr. Immelt. He quickly made it clear that he believed the era of giant conglomerates was over, claiming that GE would get smaller and simpler. But the company’s problems persisted and financial performance continued to disappoint.

In June 2018, GE, the original last member of the Dow Jones Industrial Average, was removed from the blue chip index. In the fall of that year, Mr. Flannery had been expelled, replaced by Mr. Culp.

The company also paid hundreds of millions to cover fees it misled investors.

The cost reduction accelerated under Mr. Culp. GE, which had more than 300,000 employees worldwide in 2014, now has 161,000 workers.

Investors including Trian, the activist shareholder firm led by Nelson Peltz, pressured the company to separate or sell various companies, and they applauded the move on Tuesday.

“Trian enthusiastically supports this important step in GE’s transformation,” said a spokesperson for Trian.

Shares of GE climbed more than 6% in early trading on Tuesday.

This is a developing story. Check back for updates.

About Jun Quentin

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