General Electric demerger: Will GE shareholders receive HealthCare business stock?
By Jenny McCall
13:26, 21 October 2022
This year has been synonymous with spin-offs. From GlaxoSmithKline (GSK) to Volkswagen (VOW3), it seems every company is trying to raise capital and now multinational conglomerate, General Electric (GE), is also joining the list of companies looking to sell parts of its organisation.
On 9 November 2021, the group announced its plans to form three public companies, which would focus on the growth areas of aviation, healthcare, and energy.
GE will split from its GE HealthCare division, which is home to its diagnostic, patient monitoring and imaging business, in early 2023. Once that split has taken place, it will spin-off its GE Renewable Energy business and GE Power division into one business in 2024 and it will fall under the name of GE Vernova.
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General Electric (GE) share price chart
How will GE demerger affect investors?
The business that remains will be aerospace, it will be renamed GE Aerospace and it will retain a 19.9% stake in the healthcare spin-off.
The group's share price, like other stocks this year, has suffered the brunt of high production costs, with rising inflation and its share price has fallen by 25%.
After GE HealthCare is spun-off it will be listed on the Nasdaq under stock ticker symbol “GEHC.”
So, how will this affect investors?
Will GE shareholders receive healthcare stock?
The simple answer is yes.
“Following the intended spin-off of GE HealthCare, each holder of GE common stock as of the record date will be entitled to receive shares of GE HealthCare. The number of shares received will be based on distribution ratio that will be determined and announced closer to the planned spin date”, a GE statement said.
GE plans to communicate with shareholders closer to the time about when and how GE HealthCare shares will be distributed to them.
In addition, the GE HealthCare dividend policy will be determined and announced closer to the spin-off date.
Will the number of GE common stock that shareholders own change?
No, the number of shares of GE common stock owned by shareholders will not change as a result of the planned spin-off of GE HealthCare.
Will the spin-off affect the trading price of GE stock?
Like most spin-offs, once the GE business splits, GE common stock is expected to be lower than the trading price, as it will no longer reflect the value of the healthcare business.
“There can be no assurance that, following this spin-off, the combined trading prices of the GE common stock and GE HealthCare common stock will equal or exceed what the trading price of GE common stock would have been in the absence of the spin-off,” a GE statement said
So, why is GE spinning off its healthcare business?
Well, according to GE, it wants to build on significant momentum GE has built and strengthen its financial position.
“All while deeping our culture of continuous improvement and lean. This momentum puts us in a position of strength to take this exciting next step and we remain very enthusiastic about the opportunities these planned spin-offs will unlock for our franchise as they will help drive greater focus, accountability and alignment with our customers and the markets they serve.”
The aim is that all three GE companies will be spun-off with investment-grade debt, which could be in the form of a bond or a loan and carry lower risk of default and receive higher ratings by credit rating agencies.
But this may be a challenge for some of the GE segments. For example, GE Renewable Energy is not as profitable as the other division and in the first half of 2022 it lost $853m (£764m), compared to GE Power, which made between $1bn and 1.2bn this year. When both divisions are spun-off into GE Vernova, GE will have to take this into consideration when it is split.
GE HealthCare, however, is a $18bn business and will enter the market as a strong competitor for Philips and Siemens (SIE).
But 2022 has still been a challenging year for the healthcare business, Covid outbreaks and lockdowns in China stopped many companies from delivering medical equipment and in GE’s second-quarter results in July it said that that investors should expect $3bn in profit for the year, this was below its outlook.
As a result, investors will need to look closely at how the spin-off goes over the coming months and into 2023.
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