(Reuters) - General Electric Co (GE.N) CEO John Flannery faces a tight two-year race to shed more than $20 billion in assets through dozens of deals and pare down the U.S. industrial conglomerate into three core businesses: power, aviation and healthcare.
GE’s assets could collectively be worth up to $30 per share, brokerages such as Melius Research LLC have suggested, even as its shares now hover around $19 after losing 40 percent of their value year-to-date. Successfully completing these divestitures would help narrow the valuation gap.
Shedding GE’s unloved assets, however, will require a combination of M&A transactions and spinoffs that can be time-consuming and uncertain. For example, GE cannot spin off the most valuable of the assets it has earmarked for disposal, its 62.5 percent stake in oilfield services company Baker Hughes (BHGE.N) worth $23 billion, until July 2019, according to the terms of an agreement it has with that company.
“We wonder if GE may pursue a transaction similar to Synchrony Financial, where in 2014 GE IPOed about 15 percent of the business and 15 months later offered to exchange the company’s remaining interest in Synchrony for GE stock,” Cowen and Company analysts wrote in a note on Monday.
M&A negotiations also have their own challenges. For example, GE clinched a deal for its most recent divestiture, the sale of its industrial solutions business to ABB Ltd (ABBN.S) for $2.6 billion, in September, after announcing its intention to sell that business 10 months earlier. The deal talks were fraught with tension over price disagreements, sources said at the time.
The Baker Hughes stake is excluded from Flannery’s $20 billion-plus divestiture target. Among the GE assets that are included in this target, the biggest is its transportation business, which generated revenue of $4.7 billion in 2016 and could be worth between $8 billion and $10 billion. It manufactures freight and passenger trains, marine diesel engines and mining equipment, among other products.
That business could be sold to another company or a private equity firm, or be spun off. It could attract interest from major Western industry players such as Siemens AG (SIEGn.DE) and Alstom SA (ALSO.PA), which announced an agreement in September to merge their rail units, or Japanese or Chinese train manufacturers.
GE has already put up for sale its healthcare information technology business, which is worth between $2 billion and $3 billion and assists with electronic medical records, healthcare workforce management, and hospital revenue cycle management. Some of its better known brands include API Healthcare, which it acquired in 2014, and Centricity EMR.
That business is being marketed to private equity firms, and would likely have to be broken up into separate chunks in the event of a sale, sources have said.
Reporting by Greg Roumeliotis in New York; Editing by Lisa Shumaker