NEW YORK--General Electric Co indicated it is looking closely at breaking itself up on Tuesday as the conglomerate announced more than $11 billion in charges from its long-term care insurance portfolio and new U.S. tax laws.
Chief Executive John Flannery has previously raised the idea of selling pieces of the largest U.S. industrial company, but went slightly further on Tuesday, saying GE is "looking aggressively" at a spin-off or other ways to maximize the value of GE's power, aviation and healthcare units.
"I would categorize it as an examination of options and it's (the) kind of thing that could result in many, many different permutations, including separately traded assets really in any one of our units, if that's what made sense," he said in response to an analyst question on a conference call, without giving any details.
Flannery already is eliminating thousands of jobs and cutting $3.5 billion in costs as he tries to solve problems he inherited when he became CEO on Aug. 1, including falling sales of power turbines, a build-up of inventory and declining profit margins in some businesses. His turnaround effort is still likely to take a year or more to play out.
Some Wall Street analysts saw Tuesday's remarks as a sign that GE may already have figured out valuation, timing or disclosure requirements for a spin-off. "He got really explicit," Deane Dray, analyst at RBC Capital Markets, said of Flannery's remarks. "He named all the units and said we'll look at structures that allow for a public company exit. If you're looking for the break-up scenario, it's still simmering on a front burner."
Others saw more hurdles. While ”a full-scale GE breakup may be in the cards," it would have tax, corporate and research cost implications, said Jeff Sprague, an analyst at Vertical Research Partners.
"We think these comments point more towards the eventual split-off of (GE's Baker Hughes unit) and actions such as a potential IPO of part of GECAS," GE's aircraft finance unit, Sprague said in a research note.
GE said it will provide another update on its review in the spring. A decision could come then, CNBC reported, citing sources close to GE, adding that a breakup was "likely."
GE's fourth-quarter $11 billion charge includes $6.2 billion after tax for reevaluation of insurance assets, $3.4 billion for U.S. tax changes and $1.8 billion for impairments of energy financing at GE Capital. The insurance charge was double what GE warned last year.
The charges means GE's 2017 profit, to be reported next week, will be at the bottom end of its forecast of $1.05 to $1.10 a share, GE said. GE shares ended down 2.9 percent at $18.21. At that level, the company has a market value of about $156 billion.
The insurance charge is the latest sign of problems with the modeling and funding of nursing home and other long-term care in the United States. GE said a review with outside actuaries and accountants that ended late last week showed its portfolio of 300,000 policies needed $15 billion more in reserves to cover potential payouts, or about $50,000 per policy.
GE Capital will set aside $3 billion in cash in the current quarter and $2 billion in annual increments through 2024 to cover those potential costs.
