GE TO CREATE SIMPLER, MORE VALUABLE INDUSTRIAL COMPANY BY SELLING MOST GE CAPITAL ASSETS
• 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 has 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.
GE and its Board of Directors have determined that market conditions are favourable 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.
“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.”
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.
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.
