GE closes a defining chapter in the history of the American company

As Larry Culp revealed his plan to split GE into three on Tuesday, he closed a defining chapter in U.S. corporate history, signaling how the conglomerate’s business model has fallen out of favor.

As Japan’s best-known industrial group, Toshiba, also plans to split into three under pressure from activist investors and IBM pulls out of its service business, all are following the path taken by United Technologies, DowDuPont, ABB and Siemens: Moving further away from four or five decades ago, when conglomerates were defining best business practices.

“I’m going to leave the looking back, the retrospectives, to academics and historians, frankly. I’ve spent my entire career with these models and there are different answers for different companies at different times, ”Culp told the Financial Times.

While a former executive talked of “the end of the GE that we knew,” Culp, who has been managing director since 2018, said the company has simply concluded that letting healthcare, aviation and energy companies make do with “a greater concentration, tailor-made capital allocation and strategic flexibility ”was the best way to put them in place for the next 100 years.

“Basically, GE tells us that smaller is better and more efficient,” said Sara Moeller, professor of finance at the University of Pittsburgh.

The rise in private equity made it harder for industrial companies to compete for deals that conglomerates depended on, she added. Now they had to ‘focus and stay inside [their] way, while becoming more efficient ”.


For years in the late 1990s and early 2000s, GE was the most valued company in the United States, with a market capitalization peaking at nearly $ 600 billion in 2000. Jack Welch, its president and chief executive officer of leadership for 20 years until 2001, personified his reputation for being able to run any business.

“There was almost an Elon Musk hype that drove the stock,” recalled Jeffrey Sonnenfeld, a professor at the Yale School of Management.

However, its share price history does not capture the extent of its cultural impact. Generations of Americans bought GE light bulbs and GE refrigerators, Ronald Reagan advertised his products before becoming president, and Kurt Vonnegut was a GE publicist before writing Slaughterhouse-Five.

Ronald Reagan on set while filming an episode of “General Electric Theater”, circa 1960 © Getty Images

Technicians at a GE factory in 1945 working on an airplane jet engine

Technicians at a GE factory in 1945 working on an airplane jet engine © Getty Images

But the break that Culp unveiled, reversing decades of acquisitions, also has its roots in history. Described by Deane Dray of RBC Capital Markets as the longest-awaited disruption in the industrial sector, it is the last and most important step in a painful GE clean-up and simplification process that began after the financial crisis revealed an almost fatal flaw in its model.


Welch transformed GE Capital, a division initially focused on helping customers finance the purchase of its aircraft engines and power turbines, into a financial services powerhouse involved in everything from subprime mortgages to insurance. He called it “the blob” himself.

The financial crisis of 2007-2009 revealed how much the group depended on GE Capital and how little investors understood the risks that inhabited it.

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GE Capital had been “a cookie jar” that executives could tap into to smooth uneven results from other operating activities, Sonnenfeld said. “A lot of them didn’t perform well, but GE Capital provided protection.”

Questions about the quality of GE’s accounting also arose after the crisis. He then agreed to pay $ 50 million to settle civil accounting fraud charges brought by US regulators.

“GE has bent the accounting rules past the breaking point,” said Robert Khuzami, director of the enforcement division of the Securities and Exchange Commission at the time.

In its 2009 regulations, GE neither admitted nor denied allegations that it used inappropriate accounting methods to flatter its results. He has neither admitted nor denied separate SEC accusations that he misled investors, which he settled for $ 200 million in December.

The process to contain GE Capital’s risk began under Welch’s successor, Jeff Immelt, who began a series of divestitures, including the $ 30 billion sale of a specialized financing portfolio to Wells Fargo in 2015. By that time, he had also sold NBCUniversal to Comcast. ; in 2016, it also sold GE’s century-old home appliance business to Chinese Haier.


Immelt, who ran GE just before the September 11, 2001 attacks until 2017, sold most of GE Capital but continued to seek acquisitions. Fatally, he bought the electricity business of Alstom in 2015, as the market moved away from fossil fuels.

It took two more CEOs to fully reflect GE’s past. Shortly after Culp’s takeover, he depreciated Alstom’s value by $ 23 billion, but he was not Immelt’s chosen successor.

It was John Flannery, a company veteran who began with a plan to strip GE of its power and aviation divisions. It lasted just over a year, before the drop in the stock price prompted the board to turn to Culp, the first foreigner to run the company.

Explaining the significance of GE’s breakup on Tuesday, Culp didn’t focus on the story but on the liabilities. It inherited $ 140 billion in gross debt and will have brought it down to less than $ 65 billion by the end of this year, with a focus on manufacturing efficiency, improving flows cash flow and the sale of more businesses, including aviation services and life sciences. Since taking the job, GE’s market capitalization has grown from $ 98 billion to $ 122 billion.


His plan will take until early 2024, after which he intends to stay in the aviation business, which will retain the GE name.

The three distinct companies would shape the future of flight, advance precision healthcare and lead the energy transition, he said. But in the absence of a remarkable reassessment, they will be eclipsed by today’s biggest innovators, like Apple, Amazon and Tesla.

This has sparked speculation that one or more could be targets for mergers and acquisitions. “The aviation industry, in particular, could be better off in the hands of a buyout company that can turn things around,” said a negotiator close to GE.

The GE split could also prompt other conglomerates such as 3M, Eaton and Emerson to simplify their portfolios, Dray said.

The General Electric light tower at the Columbian Exposition in Chicago, Illinois, 1893

Exhibition of the General Electric light tower at the Columbian Exposition in Chicago, Illinois, 1893 © Corbis / VCG via Getty Images

Frank Aquila, global head of mergers and acquisitions at the law firm Sullivan & Cromwell, agrees. “GE has finally found the key to unlocking the remaining value for its shareholders,” he said. “Given the pressure from activist investors, we will likely see more fallout. “

As for Culp, a near doubling of GE shares since the depths of the pandemic has already unlocked incentives worth $ 129 million at Tuesday’s closing price. Culp lost a shareholder advisory vote on his compensation in May, but if GE’s stock price rises 20% from Tuesday night’s level and stays there for 30 consecutive days, he could receive $ 233 million.

“Investors have certainly been skeptical of this award,” said Brian Johnson, executive director of ISS Corporate Solutions, a provider of corporate governance data. “Nonetheless, the share price has improved since the grant was awarded.”

When asked how the split reflected on his record, Culp didn’t say an ending. “I hope,” he said, “I’m still in the early days of my time with GE.”

Additional reporting by Patrick Temple-West

How GE has lost weight since the financial crisis

2009

November: United Technologies acquires GE’s Fire and Security divisions for $ 1.82 billion

December: GE agrees to sell $ 13.75 billion of 51% stake in NBCUniversal to Comcast

2011

August: Sale of a shipping container rental joint venture to HNA Group and Bravia Capital for $ 2.5 billion

2012

July: Sells smaller units including a business mortgage division to EverBank for $ 2.51 billion

2013

March: NBCUniversal’s remaining 49% sold to Comcast for $ 16.7 billion

December: GE’s advanced sensors business sold to Amphenol for $ 318 million

2014

February: GE Money Bank sold to Sovcombank for $ 232 million

September: Acquisition of GE’s home appliance business by Electrolux for $ 3.3 billion

2015

August: Health financing unit sold to Capital One for $ 8.5 billion

Oct: GE Capital sells $ 30 billion specialty financing portfolio to Wells Fargo

November: GE Finance and Insurance and GE Capital Finance Australia sold to a consortium of groups including Deutsche Bank; KKR and Värde Partners for $ 6.2 billion

2016

April: GE Japan sold to Sumitomo Mitsui Finance and Leasing Company for $ 4.7 billion

June: GE’s US home appliance unit sold to Qingdao Haier for $ 5.6 billion

2017

GE Osmonics sold for $ 3.4 billion

2018

May: Transport unit merges with Wabtec in $ 11.1 billion deal

November: Sells Innio for $ 3.25 billion to Advent International. Later, a portfolio of health equipment rentals and loans from GE Capital’s health equipment finance unit was sold for $ 1.5 billion. It also sells a $ 4 billion stake in Baker Hughes

December: sells 90% of its stake in ServiceMax to Silver Lake

2019

February: GE Transportation sold to Westinghouse Air Brake Technologies for $ 9.7 billion

March: GE BioPharma sold to Danaher for $ 21.4 billion

2021

March: GE Capital Aviation Services sold to AerCap for $ 30 billion

Nov: Larry Culp announces plan to split GE into three companies


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