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GE Chairman and CEO Jeffrey Immelt.
Photo courtesy GE |
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Fairfield, Conn., USA – April 10, 2015
GE To Create Simpler, More Valuable Industrial Company By Selling Most GE Capital Assets; Potential To Return More Than USD90 Billion To Investors Through 2018 In Dividends, Buyback & Synchrony Exchange
• High-value industrials to comprise more than 90% of GE earnings by 2018
• Plans to retain financing “verticals” that relate to GE’s industrial businesses
• Announces sale of GE Capital Real Estate assets for approximately $26.5 billion
• Will work with regulators to terminate GE Capital’s SIFI designation
• GE to take approximately $16 billion after-tax charge in 1Q’15, $12 billion non-cash
• Industrial businesses remain on track for operating earnings per share of $1.10-$1.20 in 2015, in line with expectations
• GE expects to get approximately $35 billion in dividends from GE Capital from this plan
• Board authorizes new buyback program of up to $50 billion
GE (NYSE:GE) today announced that it will create a simpler, more valuable company by reducing the size of its financial businesses through the sale of most GE Capital assets and by focusing on continued investment and growth in its world-class industrial businesses.
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Rentschler Biotechnologie expands European manufacturing capabilities with GE Healthcare Life Sciences bioprocess technologies. April 14, 2015.
Photo courtesy GE |
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GE and its Board of Directors have determined that market conditions are favorable to pursue disposition of most GE Capital assets over the next 24 months except the financing “verticals” that relate to GE’s industrial businesses.
Under the plan, the GE Capital businesses that will remain with GE will account for about $90 billion in ending net investments (ENI) excluding liquidity – about $40 billion in the U.S. – with expected returns in excess of their cost of capital.
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GE Chairman and CEO Jeffrey Immelt.
Photo courtesy GE |
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“This is a major step in our strategy to focus GE around its competitive advantages,” GE Chairman and CEO Jeff Immelt said.
“GE today is a premier industrial and technology company with businesses in essential infrastructure industries. These businesses are leaders in technology, the Industrial Internet and advanced manufacturing. They are well-positioned in growth markets and are delivering superior customer outcomes, while achieving higher margins. They will be paired with a smaller GE Capital, whose businesses are aligned with GE’s industrial growth.”
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Vice Chairman GE, GE Capital Chairman and CEO Keith Sherin.
Photo courtesy GE
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“The successful IPO of GE’s retail finance business, Synchrony Financial, and other recent business exits have demonstrated that our financial services assets can be more valuable to others,” said GE Capital Chairman and CEO Keith Sherin.
“GE Capital’s businesses are excellent, and this is a great market for selling financial assets. Our people are world-class. We are confident these businesses will thrive elsewhere.”
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Look up to technology.
Photo courtesy GE |
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As part of the execution of this new plan,
GE announced today an agreement to sell the bulk of the assets of
GE Capital Real Estate to funds managed by
Blackstone.
Wells Fargo will acquire a portion of the performing loans at closing.
The Company also has letters of intent with other buyers for an additional
$4 billion of commercial real estate assets.
In total, these transactions are valued at approximately
$26.5 billion.
Under the plan, GE expects that by 2018 more than 90 percent of its earnings will be generated by its high-return industrial businesses, up from 58% in 2014.
In 2015, GE’s industrial businesses remain on track for operating earnings per share of $1.10-$1.20, up solid double digits, in line with expectations.
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We have a unique perspective on jet engine technology.
Photo courtesy GE |
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“With sustainable growth, investments in competitive advantage, productivity programs and the addition of Alstom, we expect this performance to continue in the future,” Immelt said.
“We will focus our efforts on these businesses.”
Immelt added,
“We are completing another definitive and important move to reshape GE for the future. GE is a fast-growth, high-tech industrial company, built on the capabilities of the GE Store. The team is executing a detailed plan to boost margins and returns. We are allocating capital to grow the Company and benefit investors. Our best days are ahead.”
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Jet engines are a beautiful thing.
Photo courtesy GE |
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Creating Value in GE Capital
GE Capital has been an important part of the history of GE.
However, the business model for large, wholesale-funded financial companies has changed, making it increasingly difficult to generate acceptable returns going forward.
GE will retain its “vertical” financing businesses –
GE Capital Aviation Services, Energy Financial Services and
Healthcare Equipment Finance – that directly relate to its core industrial businesses.
The assets targeted for disposition, in addition to
Real Estate, are most of the
Commercial Lending and
Leasing segment, and all
Consumer platforms, including
all U.S. and international banking assets.
These businesses represent roughly
$200 billion in ENI.
Since 2008,
GE has reduced GE Capital’s ENI from $538 billion to $363 billion at the end of 2014.
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We use data, sensors and human intelligence to make machines into something brilliant.
Photo courtesy GE |
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The separation of
Synchrony Financial, which is targeted by the end of 2015, and other recently announced dispositions, account for another
$75 billion in ENI reduction (the
Synchrony separation is subject to regulatory approval).
There is potential to return more than
$90 billion to investors in dividends, buyback and the
Synchrony exchange through 2018.
The exits of the targeted
GE Capital businesses should release approximately
$35 billion in dividends to
GE (subject to regulatory approval), which, under GE’s base plan, are expected to be allocated to buyback; this is in addition to the impact of the Synchrony exchange and ongoing dividends.
The
GE Board has authorized a new repurchase program of up to
$50 billion in common stock, excluding the Synchrony exchange.
GE expects to reduce its share count to 8-8.5 billion by 2018.
These actions would still allow room for opportunistic “bolt on” acquisitions in GE’s core markets.
GE also said it plans to maintain its dividend at the current level in 2016 and grow it thereafter.
Working with Regulators
GE has discussed this plan, aspects of which are subject to regulatory review and approval, with its regulators and staff of the
Financial Stability Oversight Council (FSOC).
GE will work closely with these bodies to take the actions necessary to de-designate
GE Capital as a Systemically Important Financial Institution (SIFI).
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We have a constructive relationship with our regulators and will continue to work with them as we go through this process,” Immelt said.
Financial Details
Approximately $16 billion of after-tax charges are expected to be recorded in the first quarter of 2015 in connection with the plan – of which about $12 billion are non-cash.
The charges include taxes on repatriated earnings, asset impairments due to shortened hold periods, and charges on businesses held for sale, including goodwill allocation.
GE expects that the earnings impact of the
GE Capital exits will be offset by the buyback over the exit period.
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High winds on the high seas.
Photo courtesy GE |
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GE will execute this strategy using an efficient approach for exiting non-vertical assets that works for
GE and for
GE Capital Corporation (GECC) debtholders and
GE shareholders.
An element of this approach involves a merger of
GECC into
GE and the creation of a new intermediate holding company for
GECC businesses.
GE has amended its income maintenance agreement to guarantee all tradable senior and subordinated debt securities and all commercial paper issued or guaranteed by
GECC.
The guarantee will replace the current income maintenance covenant.
GE will maintain substantial liquidity and capital through the transition and does not expect to issue incremental
GE Capital long-term debt for at least five years.
Commercial paper will be further reduced to approximately
$5 billion by the end of 2015.
“We are proud of the GE Capital team, the outstanding businesses that GE Capital employees have built, and how they have delivered for customers and shareholders over many years,” said Immelt.
“The GE Capital team has displayed great resiliency, facing tough cycles and driving strong results.”
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Our F-class gas turbines are the largest in the world.
Photo courtesy GE |
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J.P. Morgan and
Centerview Partners have provided financial advice to
GE, and
Bank of America provided advisory services.
Weil, Gotshal & Manges, Davis Polk, and
Sullivan & Cromwell provided legal advice.
For the
Real Estate deal,
Bank of America and
Kimberlite Advisors provided financial advice and
Hogan Lovells provided legal advice.
Media Contacts:
Seth Martin
GE Corporate, Director Financial Communications
Seth Martin
+1 646 682 5602
seth.martin@ge.com
Matt Cribbins
Vice President, Investor Communications, GE Corporate
203.373.2424
matthewg.cribbins@ge.com
About GE
GE (NYSE: GE) imagines things others don’t, builds things others can’t and delivers outcomes that make the world work better.
GE brings together the physical and digital worlds in ways no other company can.
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GE is a place where big ideas come to life.
Photo courtesy GE |
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In its labs and factories and on the ground with customers, GE is inventing the next industrial era to move, power, build and cure the world.
www.ge.com
GE’s Investor Relations website at www.ge.com/investor
and
our corporate blog at www.gereports.com
as well as
GE’s Facebook page and
Twitter accounts, including
@GE_Reports,
contain a significant amount of information about
GE, including financial and other information for investors.
GE encourages investors to visit these websites from time to time, as information is updated and new information is posted.
Source: GE
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