Topic: Value Stocks

Asset sale will help brighten its outlook

With its long-term debt at 117% of its market capitalization, this conglomerate is making strategic cuts to focus on three main businesses: aviation products, electrical power equipment, and renewable power equipment.

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GENERAL ELECTRIC CO. $10 (New York symbol GE; continues to make progress with its plan to focus on three main businesses: aviation products, electrical power equipment, and renewable power equipment.

As part of that strategy, it has now merged its locomotive business with Wabtec Corp. (New York symbol WAB). GE shareholders received 0.005403 of a Wabtec share for each share they held. As a group, they will own 24.3% of the merged company, while Wabtec shareholders will own 50.8%. GE will hold the remaining 24.9% of Wabtec, which is worth about $3.4 billion.

GE plans to sell that remaining stake within three years. It has also agreed to sell its BioPharma business to Danaher Corp. (New York symbol DHR). That business makes lab equipment that pharmaceutical companies use to develop new drugs.

(Note: GE’s current CEO, Larry Culp, is the former CEO of Danaher.)

GE will use the proceeds of $21.4 billion to pay down its total debt of $110.0 billion (as of December 31, 2018). That’s a high 117% of its $89.4 billion market cap (the total value of all outstanding shares).

The BioPharma sale is part of GE’s plan to focus on three main businesses: electrical power equipment (including turbines and related equipment for gas-fired and nuclear power plants); renewable-power equipment for wind farms and hydroelectric plants; and aviation products (jet engines and aircraft electronics).

The sale to Danaher could also prompt GE to cancel its plan to spin off its health-care division. The remaining operations mainly consist of medical resonance imaging machines and related equipment.

Value Stocks: More big deals could be coming

There’s another potential deal in the offing: private equity firm Apollo Global Management is interested in buying the company’s aircraft-leasing business. It leases a fleet of about 2,000 planes and helicopters to airlines and other clients.

The leasing business could be worth $40 billion. To put that in context, GE’s market cap (the total value of all outstanding shares) is $89.4 billion.

Meanwhile, the company still plans to sell its 62.5% stake in Baker Hughes, a GE Co. (New York symbol BHGE) over the next two to three years. That business sells a variety of services and products to help exploration companies extract more oil and gas from their wells. Based on Baker Hughes current market price, GE’s stake is worth $17.5 billion.

Recommendation in Dividend Advisor: General Electric is a hold.


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