General Electric to Spin Off Healthcare Unit

On Tuesday, General Electric said it is planning to spin off its healthcare unit and to divest the stake it has in Baker-Hughes the oil-services business, leaving the conglomerates focused on power plants, renewable energy and jet engines.

The changes are aimed at rewarding beaten-up shareholders as well as strengthen the balance sheet of GE through reduction of debt, buildup of cash and further reduce the size of GE Capital, said the company through a prepared statement.

Shareholders will get 80% of the value of GE Healthcare in the form of a tax-free distribution, the company said.

Shares of GE moved higher by over 2.7% during trading before Tuesday’s opening bell.

The company added that it would spin off its profitable healthcare business between the next 12 to 18 months, and it would sell its stake in Baker Hughes within the next two to three years.

The just announced moves, which arrive at the end of a strategic review of over one year, leave GE holding some of its best as well as worst performing businesses.

The aviation unit had been very profitable, but profit at its power unit has plunged as sales of plants along with related services have dropped, and profit margins in its renewable energy unit are only in the single digits.

This latest news comes one day after GE reached an agreement to sell the distributed power business it has for a price of $3.25 billion to a buyout group Advent, based in the U.S.

GE has also announced its plans to sell off its transportation unit that is a maker of railroad locomotives.

The healthcare unit at GE is the maker of diagnostic imaging systems like magnetic resonance and X-ray and clinical systems that includes ultrasound. This business had revenue of $19.12 billion during 2017 that represented over 15% of the annual sales for the company.

GE purchased Baker Hughes in July of 2016 and merged it into its gas and oil equipment and services unit to make a new entity that GE has a stake of 62.5%. This unit posted sales in 2017 of $17.23 billion.

GE announced that it is planning to reduce industrial net debt it holds by over $25 billion before 2020 and will maintain over $15 billion in cash on the company balance sheet.

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