US leading business conglomerate General Electric Company (GE) on Friday 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, the company said in a statement.
Under the plan, the GE Capital businesses that will remain with GE will account for about USD 90 billion in ending net investments (ENI) excluding liquidity - about $40 billion in the US - 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.
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. Under the plan, GE expects that by 2018 more than 90 per cent of its earnings will be generated by its high-return industrial businesses, up from 58 per cent in 2014.
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 expects that the earnings impact of the GE Capital exits will be offset by the buyback over the exit period.