Shareholders of General Electric (GE) got a morale booster on Tuesday when the company disclosed plans to spin off the healthcare business and divest its stake in oil-field services provider Baker Hughes, amidst growing concerns over the cash-strapped company’s ability to sustain its current dividend program. The announcement triggered a stock rally, and GE shares gained nearly 6% in early trading.
The initiatives take the industrial juggernaut closer to its goal of raising $20 billion by selling various industrial assets as part of an extensive restructuring program planned over three years.
In the current fiscal year, the Massachusetts-based company targets to exit assets worth $10 billion under the program, which is expected to increase shareholder value and reduce debt. The healthcare unit, though one among the profit-making divisions of GE, will be divested over a period of 12-18 months. It is looking to slash debt by $25 billion and achieve corporate cost savings of more than $500 million by the end of 2020.
The massive restructuring program, which primarily involves divestiture of loss-making units, is aimed at focusing more on the core businesses of power, jet engine, and renewable energy. While the power business is in the negative territory, the renewable energy unit is currently generating meager profits.
The initiatives take the industrial juggernaut closer to its goal of raising $20 billion by selling various industrial assets
Earlier this week, GE announced the divestiture of its distributed power unit to buyout group Advent for $3.25 billion. Last month, the company sold its transportation unit, which manufacturers train locomotives, to Wabtech for $11 billion. While being able to exit some of the non-core businesses successfully, GE is facing difficulties in finding a buyer for the lighting division, a business it pioneered during the initial years of establishment.
Ironically, the most recent divestitures coincide with the company’s exit from the Dow Jones industrial average, ending a long-drawn-out association that dates back to early years of the 20th century.
Last year, lackluster financial performance had forced GE to reduce the headcount in a series of layoffs and to cut the dividend, in an unprecedented move. Shares of GE, which hit a ten-year low at the beginning of the month, had ended the last trading session down 2.3%.