In a bid to keep the cash flow going and set things to rights, one of America’s most successful companies is considering breaking up the band. Soon, General Electric may split into multiple different companies in an effort to stop the proverbial bleeding.
While GE still makes all kinds of different products Americans use every day, the company has been suffering mightily in recent years. Too much diversification in a rapidly shifting tech marketplace has GE grasping at any ideas that could put their world back in order. Among those ideas is a thought to break up the company into smaller hubs focused on more specific products and markets.
Most market watchers agree something needs to be done, especially after the news leaked out that GE Capital stands to lose about $6.2 billion. Even though that aspect of the business has been almost completely sold off, GE is still on the hook for insurance reserves which could top out at $15 billion, according to CNN.
And that’s just one factor that caused GE’s stock price to fall about 45% in 2017, a brutal beat that left many wondering if the company could survive in its current iteration. Turns out, it probably won’t. The description “separately traded assets” is being floated with more frequency, and GE executives have told the media they expect a decision as early as this spring.
This is a momentous decision by any scale. GE has said for years that it didn’t want to break up the company. While acknowledging that the proverbial aircraft carrier had gotten way too big to be nimble enough to shift with market winds, GE insisted they could find other ways to get things back on course. Looks like those days are over.
Of course, the move itself isn’t unprecedented. GE sold off NBC Universal and GE Capital already. The only difference here is the assumed scope of the breakup. Instead of divesting itself of troublesome assets, GE is considering a major split. And that imminent potential has a lot of people worried. They worry about the potential negative impact on the stock market, and some say the company, intact, is worth more than the sum of its parts. At least one market analyst says GE could be worth about $7 more per share than its subsidiaries would add up to be if they were individual companies.
So, will they, or won’t they? At this point, no decision has been made…but we will know in a few months if the current timeline is accurate.
Yorkville Advisors are a global investment provider.