The announcement comes on the first day in 110 years that GE will not be in the Dow Jones Industrial Average. General Electric was replaced by Walgreens Boots Alliance in the elite 30-stock index Tuesday.
The CEO of the company, John Flannery, said to analysts, “We are making fundamental changes to position our businesses for the future and redefine GE for another century of success.”
General Electric has already agreed to sell its century-old rail division and is also searching for a buyer of the iconic light bulb unit which Thomas Edison had founded.
On Monday, GE said goodbye to its distributed power business, which sells equipment used to generate electricity in remote areas. General Electric has already unloaded NBC Universal, its appliance business and much of GE Capital, the banking division that nearly killed the company during the financial crisis.
Wall Street applauded the move, sending GE’s depressed stock 5% higher on Tuesday. GE lost nearly half its value last year and it’s plunged another 25% in 2018. The stock is near its lowest level in about nine years.
The health care spin off marks a major shift by GE, which had previously said health care would remain one of its three big businesses. The division makes MRI machines and sells other medical equipment to hospitals and labs. It raked in $19.1 billion of revenue last year, accounting for 16% of the company’s total sales.
GE wants to make the health care division a standalone company. The plan is for GE to raise cash by selling a 20% stake and then distributing the remainder to shareholders. As part of the spin-off, GE plans to transfer about $18 billion of debt and pension obligations to the new entity.
GE’s decision to unload its majority stake in Baker Hughes too. Less than a year ago, GE completed the merger of its oil and gas business with Baker Hughes, creating an oil services giant. The Baker Hughes deal was a major bet by former CEO Jeff Immelt.
However, now GE plans to sell its 62.5% stake in Baker Hughes over the next two to three years. Certain restrictions prevent GE from exiting the business before mid-2019.
GE signaled on Tuesday that it may need to once again cut its dividend. The company said that once its health care division is spun off, it expects to “adjust” the dividend to fit with industrial peers. Until then, GE said it plans to keep the current dividend.
Flannery also pledged to continue shrinking GE Capital, which Welch and Immelt built into one of America’s biggest banks. It can be said that General Electric Capital is a source of financial pain. GE plans to sell $25 billion in energy and industrial finance assets by 2020.
It was quite shocking for the Wall Street and regulators when General Electric, in the month of January, announced a $6.2 billion insurance loss and warned it will need to inject $15 billion into the business. The news sent GE’s stock spiraling and triggered an investigation from the SEC.
In the future, GE will look much different, essentially becoming a jet engine and power company.
CEO, Flannery said, “This is a GE that is equipped to fight for the future.”