Once Dominant General Electric to Split Into Three Public Companies: 'It's Over Now'

General Electric will divide into three public companies, individually focusing on aviation, energy, and healthcare the company announced Tuesday.

The change comes after strenuous years of reshaping the American manufacturing company and striving to recover from debt, changes that some believe could signal the end of conglomerate companies as a whole.

"It's over now...in a digital economy, there's no real room for it," said Nick Heymann of William Blair, who has followed GE for years.

The company has dramatically changed since its beginning in the 1980s, getting rid of the products it is most famous for such as appliances and light bulbs they have created since the company was founded.

GE is looking to the future with its structural changes and hoping to lower its debt by the end of the year.

For more reporting from the Associated Press, see below:

General Electric
General Electric will divide into three public companies, individually focusing on aviation, energy, and healthcare the company announced Tuesday. The General Electric logo and buildings are pictured, in Belfort, eastern France, on September 24, 2020. Sebastien Bozon/Getty Images

The announcement Tuesday marks the apogee of those efforts, divvying up an empire created in the 1980s under Jack Welch, one of America's first CEO "superstars."

GE's stock became one of the most sought after on Wall Street under Welch, routinely outperforming peers and the broader market. Through the 1990s, it returned 1,120.6 percent on investments. GE's revenue grew nearly fivefold during Welch's tenure, and the company's value increased 30-fold.

Yet the stock began to lag in the summer of 2001, the waning days of Welch's rule. As the decade came to a close GE was struck by near ruin with the arrival of the worst financial crisis since the Great Depression. General Electric's vulnerabilities were laid bare and the epicenter was GE Capital, the company's financial wing.

Shares lost 80 percent of their value from the start of 2008 into the first few months of 2009 and have only recently begun to recover as the company unwinds much of what Welch built. The stock is up 30 percent this year as the asset sales keep coming, and shares rose 6 percent in heavy trading Tuesday to reach a new high for the year.

GE's aviation unit, its most profitable, will keep General Electric in the name. GE will spin off its healthcare business in early 2023 and its energy segment including renewable energy, power and digital operations in early 2024.

The decision to split at GE was well received Tuesday, both in general markets and by those who had pushed for the change.

"The strategic rationale is clear: three well-capitalized, industry-leading public companies, each with deeper operational focus and accountability, greater strategic flexibility and tailored capital allocation decisions," wrote Trian Fund Management, a large stakeholder whose founding partner serves on GE's board.

Heymann said the conglomerate model no longer works in a marketplace in which only the quick and agile survive.

Culp will become non-executive chairman of the healthcare company, with GE maintaining a 19.9 percent stake in the unit. Peter Arduini will serve as president and CEO of GE Healthcare effective January 1, 2022. Scott Strazik will become CEO of the combined renewable energy, power, and digital business. Culp will lead the aviation business along with John Slattery, who will remain its CEO.

Culp achieved a major milestone this year in reshaping General Electric with a $30 billion deal to combine GE's aircraft leasing business with Ireland's AerCap Holdings. Because the arrangement pushed GE Capital Aviation Services into a separate business, Culp essentially closed the books on GE Capital, the financial division that nearly sank the entire company during the 2008 financial crisis.

The company said Tuesday that it expects operational costs of approximately $2 billion related to the split, which will require board approval.

The Boston company also announced Tuesday that it expects to lower its debt by more than $75 billion by the end of the year.

The question now is whether other conglomerates will see their own company structure as a relic of the past.

The decision to break up General Electric, an industrial bellwether, could set into motion similar actions at other large conglomerates with the "urge to demerge," according to RBC Capital Markets.

"GE's announcement today could embolden the boards of several other multi-industry companies to move ahead on more aggressive portfolio simplification moves, including Emerson, Roper Technologies, and 3M," analysts with the firm wrote.

Unlike GE, which continued to shed assets this year, all three industrial conglomerates have underperformed the S&P 500 in 2021.