General Electric to Break Up Into 3 Companies

General Electric (GE) made a big announcement this week, revealing plans to break up into three companies that focus on aviation, health care, and energy.

The U.S. industrial giant said it would split into the three companies following years of seeing its stock underperform.

The company aims to spin off the health-care unit by early 2023 and the energy unit by early 2024, according to a news release.

Shares rose more than 2% on Tuesday as Wall Street digested the news.

“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,” CEO Lawrence Culp said in a statement.

“We are putting our technology expertise, leadership, and global reach to work to better serve our customers,” he added.

“We’ve made a lot of progress, not only with the balance sheet but improving our core operations, over the last several years,” Culp said on a call with investors and analysts. “But I think as we’ve seen in so many instances outside of GE over the last decade, spinning good business heightens focus and accountability.”

Analysts were cheering the decision with Wells Fargo analyst Jospeh O’Dea remarking in a note to clients, “The move does add cost, but nimbleness of three focused companies will likely be viewed as an opportunity set to more than offset any new costs.”

The company said it will use proceeds from the recent sale of its aviation financing unit to pay down debt, with gross debt expected to total less than $65 billion by the end of 2021.

The spinoffs will cause about $2 billion in transaction and operational costs, GE said.

Mad Money’s Jim Cramer said Culp has done an excellent job streamlining GE’s business structure and cleaning up its balance sheet after it was impaired by the financial crisis.

However, at this point, Cramer said it no longer made sense to keep the remaining units together.

“Let me put it like this: if you were starting a company today, you’d never create one that’s part aerospace, part health care, and part power, including renewables,” Cramer said.

Disclaimer: We have no position in any of the companies mentioned and have not been compensated for this article.