The huge sale by General Electric of its aircraft rental unit, called GECAS, is complete, delivering more than $ 30 billion in cash and assets the company can use to continue paying down debt and restructuring operations.
GE (ticker: GE) receives around $ 24 billion in cash, $ 1 billion in debt and a 46% stake in the aircraft rental company
(AER), which bought the company. This is another step in simplifying GE’s operations that will make the business more complicated to understand for some time.
GE stock was up about 0.5% in pre-market trading, roughly the same as the trend in US stock index futures.
futures contracts rose 0.4%, while futures contracts on the
Dow Jones Industrial Average
The stock market movement isn’t any bigger because everyone knew the news was coming. The sale was announced in March and GE management said it was close to closing the deal last week.
Yet what the agreement symbolized is impressive. With the sale, GE has reduced its debt by approximately $ 75 billion since late 2018. At the end of the third quarter, GE had approximately $ 19 billion in debt related to its industrial operations and debt of $ 44 billion. dollars tied to GE Capital.
Closing the deal also means GE’s lending arm, GE Capital, which once had more than $ 600 billion in assets, will no longer be a separately reported business segment. GE, in essence, has reverted to being an engineering organization.
This will complicate matters a bit as investors get used to GE’s lending transactions being reported in industrial transactions. But no one said turning around GE’s operations would be easy or straightforward.
“Completing this strategic transaction is an important step in transforming GE into a more focused, simpler and stronger high-tech industrial company,” CEO Larry Culp said in the company press release. “It’s a story of debt today… And it’s a story of longer-term equity, greatly simplifying GE to its industrial heart. ”
GE Capital’s other businesses are energy services and long-term care insurance liabilities, according to William Blair analyst Nicholas Heymann. He believes GE will sell or offload insurance contracts, simplifying itself further and reducing earnings volatility. Long-term care contracts have been a source of pain for investors as the company has taken charge of reserve building in recent years.
GE shares have had a good year as the company continues to transform. On Monday, stocks were up about 21% year-to-date, in line with comparable gains from the S&P 500.
Write to Al Root at [email protected]