Industrial Conglomerate General Electric is about to be Broken into Three Companies

2021-11-17 by JamesD

America’s General Electric company is a historic and storied conglomerate whose stock used to be one of the most commonly-held stocks in the US. According to recent reports, the industrial titan is about to be broken up into three individual companies focused on healthcare, energy, and aviation.

The break-up is in line with the organization’s drive to reduce its debt burden while making its business processes simpler. The move is also aimed at giving the company’s poorly-performing share price a needed boost. On the other end of the spectrum, the move signifies how conglomerate businesses have fallen out of favor, and therefore indicates the end of a prominent era in the history of corporate America.

Some decades ago, conglomerates played a vital role in corporate governance, as the leading organizations in the technology space were mostly structured as conglomerates. The trend has been reversed recently as companies have opted to abandon the business model entirely, and organizations like General Electric that were structured as conglomerates are being split up.

Japanese Industrial Giant Toshiba is facing similar pressure to split into three companies. The move to break up Japan’s most well-known industrial corporation is being spearheaded by the company’s activist investors. IBM is likewise taking a step away from its conglomerate structure by halting its service operations.

Thomas Edison had a hand in the inception of General Electric in 1892, and the company went through the same difficulties felt in the economy as a whole during the 2008 financial crisis. The company was an original member of the Dow Jones Industrial Average, though it became excluded from the index in 2018.

General Electric is one of the most storied companies in the US, and one that used to be the country’s most valuable company. Its market capitalization peaked at nearly $600bn in the year 2000. The  Pioneer electric cooking range and clothes washing machine were both created by General Electric, and it also created a nuclear power plant affiliated with the US space program.

However, the company has recently been neck-deep in debt, and struggling to turn things around in the aftermath of the 2008 financial crisis. The company’s rebranding and restructuring drive fueled its transformation from Jack Welch’s intimidating conglomerate of the 80s to an organization that isn’t as big, but that makes up for it with increased focus.  GE’s former chief executive said the mentality behind the company’s break-up is to facilitate improved capital flows as well as operational flexibility.

During its brief, the company announced its intention to kick off the new health care company in 2023. Likewise, the energy division will have power generation and digital operations, an energy section, and a renewable energy division too, all of which will be launched in 2024.

General Electric projects its cash flow to hit $7 billion by 2023, and there are plans to sell the company’s interests in AerCap and Baker Hughes in order to reduce its total debt burden.