GE to spin off healthcare business as separate enterprise

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GE to spin off healthcare business as separate enterprise

by John R. Fischer, Senior Reporter | June 26, 2018
Business Affairs European News

Decision-making and resource allocation will be overseen by executives at its Boston headquarters, who plan to move resources and services from their location to business units to speed up decision-making and improve execution, aiming to shrink its size below what it was a decade ago.

“GE will be much smaller and more focused, but will it be a better company?” Erik Gordon, a professor at the University of Michigan’s Ross School of Business, told The Wall Street Journal. “The loss of the healthcare division, a source of stability in recent years and home to its fast-growing life sciences business, makes GE dependent on fewer markets. “A slowdown in the jet engine business will have bigger-than-ever effects on the smaller GE.”

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Flannery, who replaced Jeff Immelt last August as CEO, first announced in November the company’s intention to cut off $20 billion of its assets and focus on power engines, power generation and healthcare as part of its aim to reduce net debt by $25 billion by 2020. He later warned earlier this year that other changes could take place due to a $6.2 billion charge incurred from a poorly-performed legacy portfolio of long-term care insurance.

As part of the plan, GE will shrink operations for its research, marketing and other functions by slashing $500 million in additional costs by the end of 2020. It also will set aside $15 billion to cover GE Capital obligations for the next seven years, and plans to reduce lending and contribute $3 billion to the finance division. In addition, GE has established a $20 billion credit facility with different banks as an extension through 2020 of a prior arrangement.

Investors in the tech giant, such as Trian Fund Management LP, have met the decision to sell off its healthcare division with enthusiasm. Trian has suffered losses since investing with GE in 2015. “Trian supports the strategic initiatives announced today by GE, and believes that these initiatives will create substantial value for shareholders,” a spokeswoman told The Wall Street Journal.

The company will maintain a quarterly dividend until the separation of the healthcare business unit, which will inherit $18 billion in liabilities from its parent company.

The possibility of layoffs and other aspects of the plan have not yet been determined.

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