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Does GE CEO move cast doubt on healthcare spinoff?

by Thomas Dworetzky , Contributing Reporter
Industry watchers have started to weigh in on the impact of the sudden replacement of GE CEO John Flannery with H. Lawrence Culp Jr. – and CNBC's Jim Cramer thinks the new CEO will put “everything on the table.”

“Everything on the table means I don't necessarily think he's going to give away [GE Healthcare] because he understood how great that healthcare division is,” Cramer said on Monday's “Squawk on the Street”.

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Another industry watcher, CFRA research analyst Jim Corridore, told Monday's Power Lunch that Culp could change his mind and keep healthcare with the company.

“Maybe healthcare is not going to get spun off now,” he suggested, noting that, “maybe some of the parts that were going to be sold make more sense today.”

But GE Healthcare spokeswoman Jennifer Fox told the news channel that the CEO switch does not change the unit's fate. “Plans to continue working toward separation … [do] not change what's happening at GE Healthcare.” The company underscored that it is still “committed to establishing healthcare as a separate independent entity.”

One reason that keeping the unit might be tempting is that it is a cash machine, putting around $19 billion in revenue and $3.4 billion in profit toward GE's bottom line – translating to 15.8 percent of the conglomerate's total sales, and 43.2 percent of its operating profit in 2017, according to CNBC.

Not all watchers think the spinoff is wobbly, however. Scott Davis, chairman and CEO of Melius Research is one who thinks that the CEO shuffle won't alter the course for GE Healthcare. “But I suppose anything is possible,” he noted to the business news channel.

The brevity of Flannery's run is remarkable for the storied company, whose previous CEOs had much longer tenures.

“This is somewhat remarkable because John Flannery just started," Cramer noted, admitting that, “I do feel bad for John. He was trying to deal with the hand that Jeff Immelt left him. The hand was too hard.”

Over a 16-year span Immelt's leadership had led the massive company to a 38 percent loss of value.

Sources have said that problems, revealed Sept. 20th, with its latest line of natural gas-powered turbines were not the issue, according to CNBC's Andrew Ross Sorkin. “The board was unsatisfied with the execution that was taking place under John Flannery's leadership,” he said, adding that its frustration “hardened over the last several weeks,” in response “to the slow pace of change.”
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Wayne Webster


October 05, 2018 09:10

Mr. Culp's earnings are remarkably impacted by his ability to raise the price of the stock. That will be his focus.

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