General Electric carried out the last part of its broad restructuring plan earlier this month, breaking up the company into three separate operations.
The old GE was a sprawling conglomerate that had struggled for more than a decade. The new one is a trio of tightly focused public companies with clear mandates in each of healthcare, energy, and aerospace.
GE Vernova (NYSE: GEV) started trading Apr. 2 and holds GE’s power businesses. The spinoff has annual revenues of US$34 billion (all figures in US dollars) and the company says one-third of all global electricity is generated by its hydro and wind turbines and nuclear reactors.
Each GE shareholder received one share of GE Vernova for every four shares they held of GE.
GE Vernova shares closed at US$142.02 on their first trading day, up 3.9%. But they have since retreated to US$133.50, down 6% from the opening day high.
What remains of GE is called GE Aerospace (NYSE: GE). It’s a dominant manufacturer of jet and turbo prop aircraft engines and mechanical systems for commercial and military aircraft. GE Aerospace built the world’s first jet engine in 1942. It has annual revenues of $32 billion and a global market share, including a joint venture with France’s Safran Aircraft Engines, of about 55%.
The shares opened at $140 on Apr. 2 and closed recently at $154 for a gain of 9%.
Last January GE launched GE Healthcare (NDQ: GEHC) at US$60 a share. It has US$16 billion in annual revenues and makes such things as X-ray, mammography, MRI, and ultrasound machines. Shareholders also received one GEHC share for every three shares of GE they owned. It closed at $86.28 Friday for a 44% gain.
The separation of the healthcare unit, improving business conditions, and high expectations for GE Vernova and GE Aerospace have been good GE’s stock. In the week leading up the Vernova spin off, GE’s shares were 85% higher year-over-year.
GE’s experience highlights why spinoffs are often good for investors. Unlike initial public offerings, which come to market when conditions are at high tide for the company, spinoff businesses are already well developed with a track record that includes many market cycles, both good and bad.
They have experienced management that know the business and can be more agile once they’re out from under the bigger umbrella. They have longstanding marketing and distribution networks. The parent often retains a stake, which is another incentive for them to set the spinoff up for success. GE kept 20% of GE Healthcare, which has since been reduced to 10%.
Not all spinoffs succeed, however. Telus Corp.’s 2021 spin-off of Telus International Inc. (TSX: TIXT) is an example of what can go wrong. TI provides information technology (IT) services for such companies as Uber and Fitbit, with customer service via chat robots. It was launched at $25 three years ago but has lost more than half its value at its recent price of $11.80.
A study by Bain & Co. suggested some spinoffs succeed spectacularly while others fail because the companies assume the mere act of spinning off a business is enough to achieve a higher multiple. Those that succeed have a clear view of what they are, where they want to go, and clearly articulated plans to get there.
In the next few months, investors will be watching TC Energy Corp. (TSX, NYSE: TRP) as it splits into two public companies. One will hold its pipeline assets and the other its natural gas and nuclear power plant assets.
Tomorrow we take a closer look at the pipeline company’s prospects.
This article appeared in The Income Investor newsletter on Apr. 11, 2024. For information on how to reprint this article please view this page.
Adam Mayers 
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