General Electric, the company that was formed in 1889 and then reflected America’s growth from the age of steam to electricity, aviation and beyond, is no more.
The American conglomerate, co-founded by Thomas Edison, opens a new chapter in its history this Tuesday: its division into three independent entities that will then focus on their disparate main businesses.
The group announced its ‘spin-off’ project in November 2021, which would take place in several stages.
An initial spin-off occurred in January 2023 with the creation of GE HealthCare, which brings together all healthcare activities.
The official completion of the separation occurs on Tuesday, with the disappearance of General Electric in favor of GE Vernova, which deals with energy activities, and GE Aerospace, the new name of the defunct GE.
Scott Strazik, CEO of GE Vernova. The American conglomerate General Electric, co-founded more than 130 years ago by Thomas Edison, opens a new chapter in its history on April 2, 2024: its spinoff into three independent entities, to allow them to focus on their very disparate core businesses.
GE to split into three separate companies starting Tuesday
Thomas Edison, inventor of the electric light bulb, the phonograph and the motion picture camera. He founded General Electric.
They will be listed in New York, one on Nasdaq and two on the New York Stock Exchange.
There will be no holding company and the three companies will publish their results independently.
GE had a market capitalization that nearly reached $600 billion in 2000, but was valued at $191 billion as of yesterday’s close.
“As independently managed companies, the companies will be better positioned to generate long-term growth and create value for customers, investors and employees,” General Electric explained in 2021 when it announced the spinoff.
Among the “many reasons” for the splits is the desire to simplify the company, getting rid of non-core activities and improving performance by withdrawing from low-growth or low-profit sectors, Neil Saunders of GlobalData told AFP.
“Within this, there is always a value play that strengthens the share price or creates more value for investors and owners,” he said.
“Managing multiple divisions in disparate areas is more difficult for a board of directors,” he continued, adding: “It is also more difficult in terms of communicating vision and strategy to investors.”
How other large companies have divided themselves in recent years
The 3M conglomerate, which manufactures, among others, adhesive tape and post-it notes, has also followed the path of the split from General Electric: in July 2022, it announced the separation of its health-related activities.
The new company, called Solventum, began trading on the New York Stock Exchange on Monday.
“This is an important day for 3M and Solventum,” 3M CEO Mike Roman said in a statement.
“Both companies are positioned to pursue their respective customized capital allocation and growth plans,” he added.
Like GE, which distributed all shares of GE Vernova to the conglomerate’s shareholders, 3M distributed all shares of the new company to its shareholders.
Both companies donated one share of the “subsidiary company” for every four shares of the “parent company.”
However, the parent company may still retain a stake, usually with the intention of monetizing it at a later date.
This is what General Electric did with GE HealthCare, in which it retained a 19.9 percent stake.
However, its subsidiary GE Aerospace now owns only 6.7 percent of the company, according to a group spokeswoman.
“GE Aerospace’s intention will not be to maintain this in perpetuity,” he told AFP.
According to McKinsey, an ancillary company that has become independent can develop further by doing business with companies that are competitors of its former “parent company.”
Other big names on Wall Street have also chosen in recent years to spin off certain activities.
For example, the giant Johnson & Johnson has maintained its business-to-business activities and created the listed Kenvue for its consumer products.
And in June 2021, breakfast giant Kellogg announced its intention to split into three companies, but in the end opted for only two: WK Kellogg for cereals and Kellanova for snacks, which was born in October 2023.
“Kellogg’s is a good example of this: the company separated its low-growth cereal business from its very fast-growing snack business,” said GlobalData’s Saunders. “But this is not without disadvantages.”
These include the loss of economies of scale resulting from sharing certain structural functions such as accounting and human resources, or a size effect, as is the case with health insurance.
A General Electric GE9X engine is displayed on a Boeing 777X aircraft as it taxis for the first flight, which had to be rescheduled due to weather, at Paine Field in Everett, Washington, on January 24, 2020. U.S. conglomerate General Electric co-founder more than 130 years ago by Thomas Edison, opens a new chapter in its history on April 2, 2024: its spin-off into three independent entities, to allow them to focus on their very disparate core businesses.
Diesel-electric locomotive cars are manufactured at the General Electric Erie Works plant.
Employees work inside Building 15 at General Electric’s Schenectady Works.
According to CNBC, some thirty-six spin-offs are planned around the world between now and 2024.
On March 19, British food and hygiene giant Unilever announced its intention to spin off its ice cream businesses, including Ben & Jerry’s and Magnum, following disappointing sales in 2023.
“The spin-off of Ice Cream is the most likely path of separation,” the company stated then, adding that it sought above all to “maximize profitability for shareholders.”
In Unilever’s case, the goal is simplification, Neil Saunders said, because ice cream operates on “a very different operating model” than other Unilever products.