GE announced 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.
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.
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.
“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.”
“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.”
Under the plan, GE expects that by 2018 more than 90% 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. “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.”
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. 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). “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.
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.”
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.
Like this story? Begin each business day with news you need to know! Register now for FREE Daily E-News Broadcast and start YOUR day informed!
Dec 1, 2016 - GE Capital Sells $3.6B Investment in Italian Bank
Nov 17, 2016 - GE Capital to Exit Stake in Czech Moneta Money Bank
Nov 7, 2016 - GE Capital Completes Spin-Off of Polish Bank
Aug 22, 2016 - Wintrust Closes GE Capital Franchise Finance Portfolio Acquistion
Aug 15, 2016 - GE Capital Receives Binding Offer to Sell French Mortgage Portfolio
May 3, 2016 - GE Completes Sale of Lending/Leasing Assets in AU & NZ to Bain Capital
Apr 8, 2016 - CWB Acquires GE Capital’s Canadian Franchise Finance Business
Jan 15, 2016 - GE Agrees to Sell Appliances Business for $5.4 Billion
Jan 15, 2016 - GE to Cut 6,500 Jobs in Europe After Alstom Purchase
Jan 7, 2016 - GE Capital Divestitures in 2015 Reach $157 Billion
Dec 15, 2015 - GE Sells Japanese Commercial Leasing Business to Sumitomo Mitsui
Dec 10, 2015 - GE Capital Passes $100B Threshold of Transactions Closed
Dec 7, 2015 - GE to Sell Mexican Equipment Lending Platform to Linzor Capital Partners
Dec 7, 2015 - GE Completes Sale of $5.9B UK Home Lending Portfolio
Dec 3, 2015 - Moody’s Assigns A1 Issuer Rating to GE Capital Global Holdings
Dec 2, 2015 - GE Completes Sale of Healthcare Services Business to Capital One
Dec 2, 2015 - GE Completes Transportation Finance Sale to BMO
Nov 18, 2015 - Synchrony Financial Completes Separation from GE
Nov 16, 2015 - Two Bidders Remain for GE’s Japanese Commercial Finance Unit
Nov 4, 2015 - GE Completes Sale of European Fleet Services to Arval
Oct 28, 2015 - Burger Appointed GECAS President and CEO
Oct 19, 2015 - GE Begins Exchange Offer to Complete Separation of Synchrony Financial
Oct 16, 2015 - GE Reports $126B of Signed Dispositions, Will Close $100B by YE
Oct 16, 2015 - WSJ: Wells Fargo’s Pursuit of GE Assets Likely Over
Oct 14, 2015 - Wells Fargo Buys GE’s $32B Lending/Leasing Businesses
Oct 12, 2015 - Reuters: GE Nears Deal to Sell $30B of Loans to Wells Fargo
Oct 5, 2015 - GE Capital Nears $100 Billion in Asset Sales Since April
Oct 1, 2015 - GE Sells Tank Car Portfolio to Marmon, Railcar Leasing to Wells Fargo
Oct 1, 2015 - Element Closes GE Capital Fleet Ops in Mexico, Australia & NZ
Oct 1, 2015 - MidCap, Apollo Partner to Acquire $3.6B Mubadala GE Capital Portfolio
Sep 24, 2015 - Bloomberg: GE Capital Will Sell Private-Equity Unit to Ardian
Sep 17, 2015 - GE Completes Sale of European Sponsor Finance Business
Sep 14, 2015 - KKR, Apollo to Pursue GE’s $11B Inventory Finance Arm
Sep 11, 2015 - GE to Sell Transportation Finance Unit to BMO
Sep 11, 2015 - GE Exploring Sale of Asset Management Arm
Sep 2, 2015 - Bidders for GE Capital’s Australian Units Down to 3
Aug 28, 2015 - Contenders Emerge for GE Capital Australian Assets
Aug 24, 2015 - GE Completes Sale of U.S. Sponsor Finance Business to CPPIB
Aug 19, 2015 - Field Shrinks in Competition For GE Capital Australian Assets
Aug 18, 2015 - Early Returns on GE Capital Sale Spark Moody’s Upgrade
Aug 14, 2015 - GE Capital Sells Deposit Platform to Goldman Sachs
Aug 12, 2015 - Capital One Acquires GE Capital’s Healthcare Finance Unit
Aug 7, 2015 - Reuters: Capital One in Exclusive Talks for GE Healthcare Finance Arm
Aug 3, 2015 - FSOC Says GE Capital Still ‘Systemically Important’
Jul 31, 2015 - GE Capital Sells Japanese Office Holdings
Jul 29, 2015 - Reuters: Fed Tells GE Capital to Upgrade Resolution Plans
Jul 28, 2015 - Reuters: GE Sets Deadline for Japanese Leasing Unit Bids
Jul 21, 2015 - The Australian: Tudor in the Mix for GE Assets
Jul 20, 2015 - GE Capital CDF CEO Comments on Sale of Business
Jul 17, 2015 - GE Reports Q2 Net Loss on Discontinued Operations Charges
Jul 8, 2015 - GE Accelerates CLL Asset Disposals; Will Take Q2 Charge of $4.3B
Jul 1, 2015 - Reuters: Sherin Sees Asset Sale Pace Speeding Up in Q3
Jul 1, 2015 - GE Agrees to Sumitomo Mitsui’s Offer for European Sponsor Finance Business
Jun 29, 2015 - Element, Arval to Acquire Majority of GE Fleet Business
Jun 23, 2015 - WSJ: Sumitomo Mitsui Interested in GE’s Rail Business
Jun 17, 2015 - GE Capital Releases Q2/15 Fleet Market Economic Outlook
Jun 16, 2015 - NYT: GE Said to Struggle to Find Buyers of Australian Units
Jun 12, 2015 - Wells, TD Explore Bids for GE Lending Assets
Jun 10, 2015 - GE Sells U.S. Sponsor Finance Business to CPPIB for $12B
Jun 9, 2015 - GE Uses Own Metric to Value Its Finance Arm’s Assets
Jun 8, 2015 - WSJ: GE Close to Private Equity Sale to CPPIB
Jun 4, 2015 - GE Said to Hire Banks to Start Sale on $20B Assets
Jun 1, 2015 - GE Launches Sales Process for Portion of Commercial Lending Units
May 29, 2015 - GE Selects Deutsche Bank to Sell GE Capital Interbanca
May 28, 2015 - GE Capital CEO Prioritizes Sale of Private Equity Assets
May 27, 2015 - Bloomberg: GE, Element in Talks over Fleet Assets
May 26, 2015 - Rumor: Element’s $2.5B Raise Tied to GE Capital Fleet Acquisition
May 21, 2015 - Element Financial to Raise $2.2B to Fund Future Acquisitions
May 21, 2015 - GE Said to Be Running Ahead of Schedule on Asset Sales
May 13, 2015 - Banks Have Advantage Over PE Firms in GE Antares Bidding
May 11, 2015 - WSJ: GE Capital Bidders Said to Sign ‘Nonhire’ Clause
May 1, 2015 - Bloomberg: Oaktree Has Interest in GE Capital Assets
Apr 29, 2015 - GE Capital: Truck Transportation Spring 2015 Update
Apr 21, 2015 - WSJ: GE in Talks to Sell U.S. CLL Business to Wells Fargo
Apr 21, 2015 - GE Capital Finances AAA Acquisition
Apr 20, 2015 - Moody’s: GE Capital Asset Disposal Will Alter ABS Landscape
Apr 17, 2015 - GE Capital Q1/15 Net Loss of $14.7B After ‘Exit Impacts’
Apr 15, 2015 - NYT: Investment Bankers Will Feel the Pain of GE Capital Spinoff
Apr 15, 2015 - GE Capital Fleet Services Introduces BrightWorks Insights
Apr 14, 2015 - GE Capital Will Look Like a Captive in 2018
Apr 14, 2015 - Mubadala GE Capital: No Plans to Change Strategy of Business
Apr 13, 2015 - GE’s Decision to Sell Most of GE Capital ‘End of an Era’
Apr 13, 2015 - GE Shares Finish at Highest Level Since 2008
Apr 13, 2015 - Blackstone, Wells Fargo to Acquire GE Capital’s CRE Assets