US GE Split... Is the Era of 'Octopus-Arm Management' Coming to an End?

Aviation, Energy, and Healthcare Three Companies' Independent Path
Divisional Last Stand Amid Debt Reduction Limits
"The Final Chapter of Years-Long Restructuring Efforts"

[Asia Economy Reporter Yujin Cho] General Electric (GE) of the United States will split into three independent companies focusing on aviation, energy, and healthcare, embarking on independent management. As efforts to reduce debt amid a sharp decline in sales reached their limits, the company took the last-ditch measure of 'corporate split' out of a sense of crisis that its very survival could be threatened. The market views GE's split decision, once a symbol of American manufacturing, as signaling the end of the era of sprawling management.

According to the Wall Street Journal (WSJ) and others on the 9th (local time), GE announced that it will gradually separate and list its energy & power and healthcare business units by early 2024.

The continuing aviation business unit will retain the name 'GE' and plans to hold a 19.9% stake in the healthcare unit. Lawrence Culp Jr., GE's CEO, will lead the aviation division while serving as the non-executive chairman of the healthcare unit.

This corporate split decision is a self-help measure to reduce debt and recover performance and the collapsed stock price. According to financial data provider FactSet, while the S&P 500 index rose by an average of 9% annually since 2009, GE's stock price fell by an average of 2% annually.

Revenue, which exceeded $180 billion in 2008, plunged by more than half to $79.6 billion last year. GE aims to reduce its total debt to around $95 billion by 2023 through performance and financial improvements.

WSJ evaluated this split decision as "putting a full stop to the company-wide restructuring efforts that have continued for years since 2018." GE, founded in 1892 by Edison as an electric consumer appliance business, expanded into almost every manufacturing sector, including home appliances, medical devices, aviation and automobile engines, atomic fuel, and nuclear power facilities, growing into the world's largest manufacturer.

In the 1930s, GE also entered the financial industry, aggressively expanding its business by establishing subsidiaries such as GE Capital. However, it suffered irrecoverable losses in the capital business, which was its financial lifeline, due to the subprime mortgage crisis, and has been undergoing intensive restructuring since 2018.

GE's decision to split at a level tantamount to corporate dismantling, once a symbol of American manufacturing, means that the 'GE-style model' can no longer survive. WSJ also analyzed that the pressure once applied to conglomerates endlessly expanding their business fields is shifting to big tech companies like Google and Amazon, which have entered various fields based on platforms and technology and enjoy monopolistic positions.

Wall Street investors are also critical of large corporations that have grown through sprawling expansion like GE. They have directly pressured companies to simplify business operations or organizations and to split off or sell business units unrelated to their core businesses.

David Ziroux, Chief Investment Officer (CIO) of Equities and Multi-Asset at U.S. asset management firm Thomas Rowe Price, said, "Companies are fleeing the GE-style conglomerate model," adding, "The trend of selling low-growth business units or splitting human and physical assets for operational simplification will continue for the time being."

This concern was also reflected in the press release announced by GE CEO Lawrence Culp Jr. on the same day. He said, "By establishing three leading global companies in the industry, we will gain higher operational focus, strategic flexibility, and advantageous positions in capital utilization."

This content was produced with the assistance of AI translation services.