As a General Electric shareholder, I am thrilled to learn that GE will split itself into three public companies.<\/b>
\nAs a General Electric shareholder, I am thrilled that GE will split itself into three public companies, according to the Wall Street Journal. The stock is up 8.8% in November 9 pre-market trade despite considerable uncertainty, I will hold on to my shares. It has been over 21 years since GE stock peaked at $465 a split-adjusted share in September 2000 when GE\u2019s last great CEO, Jack Welch, was nearing the end of a fantastic two-decade run. It was Welch who presided over the last gasp of the idea that conglomerates could be successful. The double-digit earnings growth and steady stock price increase under his watch defied the idea that a portfolio of companies in unrelated industries would be worth more as independent companies. Since Welch left the scene, its stock has plunged and it now stands a whopping 77% below its all-time high. By splitting into three public companies, GE will no longer be a conglomerate. With details of how current shareholders will fare, it is too early to tell whether GE shareholders should hold on. But I will stock around to see whether the parts are worth more than the whole. GE announced on November 9 that it plans to split into three public companies focused on aviation, healthcare and energy. Here is the plan: GE expects to incur about $2 billion in one-time separation, transition and operational costs, and less than $500 million in tax costs. GE is thrilled with this move. As CEO Larry Culp said in a statement, \u201cBy creating three industry-leading, global public companies, each can benefit from greater focus, tailored capital allocation, and strategic flexibility to drive long-term growth and value for customers, investors, and employees.\u201d GE shares are way up in the last year \u2014 55% over the last 12 months, noted CNBC. However, since Welch retired on September 6,2001, GE shares have fallen by 66 percent from about $315 to $108 GE peaked under Welch in the 1980s as he added financial services and broadcasting businesses to what had been a leader in appliances, jet engines and power turbines. As CNBC reported, he presided over enviable earnings growth and returns for investors and as recently as the early 2000s, GE was at times the largest company by market value. The financial crisis hit and successor Jeff Immelt \u2014 who I gave a Gentleman\u2019s C for his leadership just kept tumbling. In 2018 the stock was tossed out of the Dow Jones Industrial average. Culp \u2014 who previously ran a mini-conglomerate, Danaher has spun off or sold many units. Sadly, since 2009, GE stock has lost 2% a year in value compared to a 9% return for the S&P 500 according to Factset. In 2007, I was invited to GE headquarters in Rockefeller Center. GE\u2019s chief financial officer asked me what GE needed to do to increase its stock price. I advocated breaking up the conglomerate structure. Indeed I have been asking my Strategic Decision Making students to analyze GE\u2019s breakup value to measure its conglomerate discount for years. As I wrote nearly four years ago, GE then had a breakup value of $88 a share \u2014 adjusting for the August 2021 reverse stock split. I then estimated its shares could tumble from a split-adjusted $139 down to $56. Sadly that is what happened \u2014 in fact, in May 2020, it went as low as $44 on a split-adjusted basis. Why did I hold on to the stock? The first thing that comes to mind is that there are many people who own GE stock because they bought it when Jack Welch was CEO. Welch tapped into a very powerful heuristic \u2014 people’s biases are shaped by a good story that is shared by people they respect. The story Welch crafted about GE was memorable \u2014 only be in businesses where you are #1 or #2 in the industry; rank and yank employees; and invest in training. That, according to the Welch narrative, was how to create quarterly expectations-beating earnings-per-share growth that would propel the stock higher by double-digit percentages every year. The reality of GE has been at odds with this compelling story for decades. But the spin-off certainly offers a reason to hope for faster-growth and higher investment returns. Indeed, according to InvestorPlace, Bank of America BAC analyst Andrew Obin is confident that GE\u2019s \u201caviation unit will lead General Electric\u2019s revenue growth turnaround in 2022 by increasing 20% from 2021 levels. Furthermore, Obin projects that General Electric\u2019s 2022 net income will reach $4.36 billion, a figure which would be more than twice the 2021 total.\u201d The skeptical view, according to an October comment from JPMorgan JPM analyst Stephen Tusa, is that GE should be worth $55 on weakening near-term fundamentals. Nonetheless, he struck a note of muted optimism on recent portfolio moves, as well as the appointment of a new CEO at GE Healthcare. One thing is certain \u2014 GE will continue to be a turbulent company with plenty of shareholders watching its every move.<\/p>\n