Here's What the GE HealthCare Spinoff Means to Investors
General Electric (NYSE: GE) is about to change forever. The first significant part of the conglomerate's breakup will occur in early 2023 with the spinoff of GE HealthCare. That will be a critical event for GE for several reasons, so let's take a look at them and try to decipher what it means to investors.
After the company spins off GE HealthCare, management plans to combine the GE Renewable Energy and GE Power segments into one business. In early 2024, that, too, will be spun off under the name GE Vernova. The remaining business will focus on aerospace and will be renamed -- wait for it -- GE Aerospace. GE Aerospace will retain a 19.9% stake in the healthcare spinoff. It could liquidate some of that stake later to reduce debt, or (as management said in the investor update detailing the breakup plan) "optimize capitalization of each business."
That's an essential point because management intends to ensure that all three of these GE companies come out of the split with investment-grade debt -- and debt-to-earnings metrics factor heavily into those debt ratings. Unfortunately, one potential problem here is that the future GE Vernova businesses have earnings challenges. For example, GE Renewable Energy is currently loss-making (it lost $853 million in the first half of 2022), while GE Power is on track to make between $1 billion and $1.2 billion in profit this year. Simply put, management will need to ensure it spins off GE Vernova with an acceptable level of debt, and that may require a contribution from the GE HealthCare stake. Moreover, GE shareholders will want the best price from the spinoff.
Source Fool.com
