GE To Shed Distributed Power, Healthcare & Baker Hughes; Narrows Portfolio Focus

After announcing a $3.25 billion sale of its Distributed Power business to Advent International on Monday, GE announced Tuesday its narrowed company focus that includes the divestment of its Healthcare and Baker Hughes segments.

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BOSTON — On Tuesday, GE announced the results of its strategic review. GE will focus on Aviation, Power and Renewable Energy, creating a simpler, stronger, leading high-tech Industrial company. In addition to the pending combination of its Transportation business with Wabtec, GE plans to separate GE Healthcare into a standalone company, pursue an orderly separation from BHGE over the next two to three years, make its corporate structure leaner and substantially reduce debt. GE’s Board of Directors unanimously approved the plans announced today.

John Flannery, chairman and CEO of GE, said, “Today marks an important milestone in GE’s history. We are aggressively driving forward as an aviation, power and renewable energy company — three highly complementary businesses poised for future growth. We will continue to improve our operations and balance sheet as we make GE simpler and stronger.” 

Flannery continued, “GE Healthcare and BHGE are excellent examples of GE at its best — anticipating customer needs, breaking barriers through innovation and delivering life-changing products and services. Today’s actions unlock both a pure-play healthcare company and a tier-one oil and gas servicing and equipment player. We are confident that positioning GE Healthcare and BHGE outside of GE’s current structure is best not only for GE and its owners, but also for these businesses, which will strengthen their market-leading positions and enhance their ability to invest for the future, while carrying the spirit of GE forward.”

GE of the Future

GE will be a focused high-tech industrial company that will be easier for investors to follow and measure with a significantly improved balance sheet to support its remaining businesses:

  • GE Aviation continues to be a leader in the aviation industry. GE technology powers two out of every three commercial departures around the world and GE’s global installed base includes more than 65,000 engines.
  • GE’s energy strategy, driven by GE Power and GE Renewable Energy, is based on offering a full range of energy solutions across the electricity value chain that bring affordable, reliable, efficient energy to businesses and consumers. GE powers more than one-third of the world’s electricity and has a valuable installed base of approximately 7,000 gas turbines, with a track record of increasing productivity.
  • GE will continue to invest for the future and lead in innovative technologies like additive manufacturing and digital to lead the next wave of industrial productivity.

GE is making fundamental changes to how it will run the company. The new GE Operating System will result in a smaller corporate headquarters focused primarily on strategy, capital allocation, talent and governance. It will result in better execution, increased speed and is expected to generate at least $500 million in corporate savings by the end of 2020. Under the new GE Operating System, most resources and services traditionally held at the headquarters level will be realigned to the businesses. 

GE is targeting an Industrial net debt-to-EBITDA ratio of less than 2.5 times and a long-term A credit rating. GE also plans to reduce Industrial net debt by approximately $25 billion by 2020 and maintain more than $15 billion of cash on the balance sheet.  

GE expects to maintain its current quarterly dividend, subject to board approval, until GE Healthcare is established as an independent entity. At that time, the new GE Healthcare board of directors will determine GE Healthcare’s dividend policy, which GE expects to reflect healthcare industry practices. Also at that time, the GE Board expects to adjust the GE dividend with a target dividend policy in line with industrial peers. 

Creating GE Healthcare as a Standalone, Pure-Play Company

Kieran Murphy, president and CEO of GE Healthcare, will continue to lead GE Healthcare as a standalone company, maintaining the GE brand.

“GE Healthcare’s vision is to drive more individualized, precise and effective patient outcomes," Murphy said. "As an independent global healthcare business, we will have greater flexibility to pursue future growth opportunities, react quickly to changes in the industry and invest in innovation. We will build on strong customer demand for integrated precision health solutions and great technology with digital and analytics capabilities as we enter our next chapter."

Flannery added, “GE Healthcare is an industry leader with financial strength, global scale and cutting-edge technology. Our talented Healthcare team will continue delivering precision health solutions, building on our heritage of technology innovation that delivers patient outcomes.”

GE Healthcare recorded over $19 billion in revenues in 2017 and posted five percent revenue growth and nine percent segment profit growth in the same year. The business provides medical imaging (including contrast agents), monitoring, biomanufacturing and cell therapy technology, leveraging deep digital, artificial intelligence and data analytics capabilities.  Its products and services are valued by customers in 140 countries around the world. 

GE expects to generate cash from the disposition of approximately 20 percent of its interest in the Healthcare business and to distribute the remaining 80 percent to GE shareholders through a tax-free distribution. The structure, sequence and timing of these transactions will be determined and announced at a later date, but are expected to be completed over the next 12 to 18 months. GE Healthcare will conduct business as usual throughout this process, continuing to serve its partners and customers. 

BHGE

GE plans to fully separate its 62.5 percent interest in BHGE in an orderly manner over the next two to three years.  BHGE’s full stream offering brings together equipment, services and digital solutions to help its customers be more productive — a unique and powerful value proposition in a changing market. The separation will provide BHGE with enhanced agility and the ability to focus on leading in the oil and gas industry. 

GE Capital

GE continues to work to make GE Capital smaller and more focused on supporting its core industrial businesses. The company intends to materially shrink the balance sheet of GE Capital targeting sales of $25 billion in energy and industrial finance assets by 2020. The company is assuming an approximately $3 billion capital contribution to GE Capital in 2019.  In addition, the company is actively exploring options to reduce its insurance exposure.  

Lead Director Transition

GE also announced that the Board’s independent directors have completed the previously announced lead director transition, electing Larry Culp, former CEO of Danaher, to succeed Jack Brennan, who is completing his last term on the Board. The change is effective today.  Mr. Culp will also chair the Board’s Management Development and Compensation Committee.  He joined the GE Board as an independent director earlier this year.

Flannery said, “As lead director, Jack has been an incredibly valuable partner and advisor to GE through economic cycles, changes to our business and our most recent leadership transition. I would like to thank him for his advice and stewardship through a period of significant change for GE.  He has been especially helpful over the last year as we have conducted our review of the company and developed our plan to position GE for the future.”

Flannery added, “Larry’s track record on strategy development and execution, capital allocation and talent make him well suited to take on this role. I appreciate his clarity, transparency and business-first philosophy, and I believe his leadership will be invaluable to GE as we enter our next chapter.”

Simpler, Stronger GE

Today’s announcements follow a series of changes GE has made in the past year. With the announced sales of Distributed Power, Industrial Solutions, and Value-Based Care, and pending combination of its Transportation business with Wabtec, GE’s $20 billion divestiture target is substantially complete. 

Flannery concluded, “GE’s mission and technology change the lives of billions of people around the world. We will now move forward with purpose to make our company simpler and stronger and accelerate growth across our businesses. I’m confident that today’s actions, in conjunction with other changes we have already made, will produce improved operating results and increased shareholder value going forward. We are focused on executing the strategy and implementing the structure we’ve laid out today to position our businesses for future growth.”

GE Distributed Power sold to Advent International For $3.25B

BOSTON — GE announced Monday that it has signed an agreement to sell its Distributed Power business to Advent International, one of the largest and most experienced global private equity investors, for $3.25 billion. The transaction includes Distributed Power’s Jenbacher and Waukesha engines, as well as manufacturing sites in Austria, Canada and the U.S.

Distributed Power, a business unit of GE Power, is a provider of reciprocating gas engines, power equipment and services focused on power generation and gas compression at or near the point of use. Distributed Power offers a diverse product portfolio that includes highly efficient, fuel-flexible, industrial gas engines generating 200 kW to 10 MW of power for numerous industries globally. With approximately 3,000 employees and three main facilities located in Austria, the U.S. and Canada, Distributed Power has delivered more than 48,000 Jenbacher and Waukesha reciprocating gas engines to customers around the world. The Distributed Power business had sales of $1,317 million for the year ended Dec. 31, 2017.

With over 100 transactions successfully completed in the Industrials, Energy and Business Services sectors, Advent is one of the most experienced global investors in these sectors. The firm invests in well-positioned companies with significant operational and strategic potential and partners with management teams to create value by driving revenue and earnings growth. Advent has a strong global network as well as extensive experience in carve-outs of large industrial companies to significantly support the Distributed Power business in expanding its market position and establishing a strong standalone entity.

Carlos Lange, President of Distributed Power, said, “In Advent, we have a partner that shares our team’s passion for delivering outstanding customer outcomes. Our Jenbacher and Waukesha brands and engines are recognized all over the world for their performance and reliability, and Advent’s deep sector expertise will allow us to further strengthen our capabilities for the benefit of our worldwide customers. Advent will help accelerate our growth as we continue to execute on our priorities.” 

“Distributed Power is a terrific asset with highly regarded engines that are the go-to OEM for the efficient generation of electrical power and heat as well as gas compression,” said Ranjan Sen, Managing Partner at Advent International. “The business has significant growth potential on a global scale and talented employees all over the world. We plan to invest substantially in critical areas such as the product portfolio, service network and digitization to support Distributed Power in sustainably strengthening its market position.” 

“GE Power will continue to invest in developing the energy technologies of the future and improving the power networks we depend on today. This transaction not only accelerates our reinvestment in our business, but also enables Distributed Power to be best positioned to pursue its growth strategy,” said Russell Stokes, President and Chief Executive Officer of GE Power. 

GE Power, which generates one-third of the world’s electricity, is a leader in power generation with deep domain expertise to help customers deliver electricity from a wide spectrum of fuel sources. Its technology has equipped 90% of power transmission utilities worldwide, and 40% of the world’s energy is managed by its software. GE Power has a strong installed base, innovative technologies and digital offerings that help make power more affordable, reliable, accessible and sustainable.

The transaction is expected to close by the fourth quarter 2018, subject to customary closing conditions and regulatory approvals. 

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