GE plans to form three public companies focused on growth sectors of aviation, healthcare and energy
Culp continued, âToday is a watershed moment for GE, and we are ready. Our teams have done exceptional work to strengthen our financial position and our operational performance, while deepening our culture of continuous improvement and rationalization. And we are not done: we remain focused on further reducing debt, improving our operational performance and strategically deploying capital to generate sustainable and profitable growth. We have a responsibility to move quickly to shape the future of flight, deliver precision health, and lead the energy transition. The momentum we’ve built puts us in a strong position to take this exciting new step in GE’s transformation and realize the full potential of each of our businesses.
Significant progress enabling the next step in GE’s transformation
This plan builds on the significant momentum that GE has built in recent years.
Stronger financial position
- Focused and reduced risk through strategic portfolio actions, including the recent GECAS transaction, resulting in a simpler, stronger and more focused high-tech industrial enterprise;
- Expect to achieve over $ 75 billion in gross debt reduction from end of 2018 to end of 2021;
- Stabilized insurance and mitigated financing risks thanks to capital contributions of $ 9.4 billion since 2018, investment portfolio actions, better claims management and premium increases;
- Manage pension obligations with discipline, including the $ 8.5 billion funding since 2018 and the freezing of most pension plans in the US and UK, and expect no no further membership fees be required by the end of the decade; and
- Strengthening liquidity and improving cash management, including eliminating accounting factoring and announcing today a plan to phase out the remainder of GE’s non-accounting factoring.
Better commercial and operational performance
- Implementing a decentralized operating model by bringing customers closer to the center of gravity, which has helped strengthen customer relationships and improve operations of GE’s nearly 30 P&L;
- Lean scaled across the enterprise, driving performance improvement and culture change;
- Improve the operational performance of companies to generate consistent and sustainable free cash flow, while improving transparency and financial flexibility to reinvest in growth opportunities;
- Leadership and governance strengthened with the renewal of the board of directors, numerous management appointments and the transition of auditors; and
- Emerging from the headwinds of COVID-19, while improving cash generation, going on the offensive and investing for growth.
In the current business portfolio, GE is on track to reduce its debt by more than $ 75 billion by the end of 2021 and is now on track to bring its net debt / EBITDA * ratio to less than 2, 5 times in 2023. GE will also continue to make operational improvements for profitable and sustainable growth, and the company now plans to achieve high single-digit * free cash flow margins * in 2023. As a result, GE is in good position to execute this plan to form three capitalized and investment grade companies. The company and its operations will continue to serve GE partners and customers throughout this transition.
Culp will be non-executive chairman of healthcare company GE when it splits. He will continue to serve as CEO of GE until the second spin-off, when he will lead the aviation-focused GE company going forward.
Peter Arduini will assume the role of President and CEO of GE Healthcare effective January 1, 2022. Scott Strazik will be CEO of the combined renewable energy, power and digital businesses, while John Slattery will remain Chief Executive Officer of Aviation.
Three leading global public companies
GE intends to execute the Healthcare spin-offs in early 2023 and the Renewable Energy and Power businesses in early 2024. The respective capital structures, brands and management teams of each independent company will be determined and announced later. Where appropriate, GE will consult with employee representatives in accordance with its legal obligations before any final decisions are made.
Through the transition, GE will be able to monetize its holdings in AerCap and Baker Hughes, with a focus on further debt reduction. Each of the resulting three independent companies will be well capitalized with quality ratings.
As a result of the spin-offs, GE will today retain other GE assets and liabilities, including insurance operations in liquidation. Upon closing of the Healthcare transaction, GE plans to retain a 19.9% ââstake in the healthcare company in order to provide flexibility in capital allocation. GE also intends for Healthcare to issue debt securities, the proceeds of which will be used to repay GE’s outstanding debt. Transactions are not subject to the consent of bondholders.
The company expects to incur one-time separation, transition and operating costs of around $ 2 billion and tax costs of less than $ 0.5 billion, which will depend on the specifics of the transaction. The proposed spin-offs of Healthcare and the Renewable Energy and Power businesses are intended to be tax exempt for GE and GE shareholders for US federal income tax purposes.
Transactions are subject to satisfaction of customary conditions, including final GE Board approvals, Internal Revenue Service private letter rulings and / or attorneys’ tax opinions, filing and efficiency Form 10 registration statements with the US Securities and Exchange Commission, and satisfactory completion of funding.
Paul, Weiss, Rifkind, Wharton & Garrison LLP is the senior legal counsel. Evercore and PJT Partners are GE’s principal financial advisers in connection with the transaction. GE has also received legal advice from Gibson, Dunn & Crutcher LLP and financial advice from BofA Securities and Goldman Sachs.
Conference call and webcast
GE will host an investor conference call starting at 8:15 a.m.ET today to discuss its plans. The call will include remarks from President and CEO H. Lawrence Culp, Jr., and CFO Carolina Dybeck Happe.
The conference call will be webcast live, and the accompanying webcast and slide presentation featuring financial information can be viewed by visiting the Events and Reports page on GE’s website at: www. ge.com/investor. An archived version of the webcast will be available on the website following the call.
This document contains “forward-looking statements”, that is to say statements relating to future events and not past. These forward-looking statements often deal with our future business and financial performance and our financial condition, and often contain words such as “expect”, “anticipate”, “intend”, “plan”, “believe” , “Seek”, “seek”, “see,” “will”, “should”, “estimate”, “forecast”, “target”, “preliminary” or “range.” Forward-looking statements, by their nature, deal with matters which are, to varying degrees, uncertain and subject to risks, uncertainties and assumptions. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove to be incorrect, the results actuals could differ materially from those indicated or anticipated by such forward-looking statements. The inclusion of such statements should not be construed as a representation that such plans, estimates or expectations will be achieved. such that actual results differ materially from these plans, estimates or expectations include, among others, (1) the ability to effect the transactions described above and to meet the conditions therein, (2) the potential uncertainty during the duration of transactions that could affect GE’s financial performance, (3) the possibility that transactions will not be completed on time or at all, (4) the possibility that transactions will not achieve the expected benefits, (5) the possibility of disruption, including changes to existing business relationships, litigation, litigation or unforeseen transaction costs, (6) uncertainty as to the expected financial performance of GE or separate companies after completion transactions, (7) the negative effects of announcing or waiting for transactions on the market price of GE’s securities and / or on GE’s financial performance, (8) the evolution use of legal, regulatory and tax regimes, (9) changes in general economic and / or industry-specific conditions, (10) actions of third parties, including government agencies, and (11) other factors as detailed from time to time in GE’s reports filed with the SEC, including GE’s Annual Report on Form 10-K, Periodic Quarterly Reports on Form 10-Q, Routine Periodic Reports on 8-K forms and other documents filed with the SEC. The preceding list of important factors is not exclusive.
Non-GAAP financial measures
In this document, we sometimes use information derived from consolidated financial data but not presented in our financial statements prepared in accordance with United States generally accepted accounting principles (GAAP). Some of this data is considered ânon-GAAP financial measuresâ under the rules of the United States Securities and Exchange Commission. These non-GAAP financial measures supplement our GAAP information and should not be viewed as an alternative to the GAAP measure. Our reasons for using these non-GAAP financial measures and reconciliations to their most directly comparable GAAP financial measures are included in our filings with the SEC and our results, where applicable.
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 Certain stages may be the subject of information and consultation with employee representatives when required by law.
* Non-GAAP measure
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