When General Electric moved to Boston more than five years ago, the industrial titan offered a grand vision for its future, one that spanned a dizzying array of industries.
But the company’s fortunes soon reversed. Ambitions were scaled back amid financial trouble, and whole divisions were sold off. Now, the latest twist: Chief Executive Larry Culp on Tuesday unveiled a plan to split what’s left of GE into three separate companies, in the hopes that they will be more successful on their own than they have been under the same corporate umbrella.
In early 2023, Culp said, GE will spin out its health care business as a standalone public company, with GE’s renewable energy and power businesses to be combined and spun out a year later. The remaining company will primarily consist of GE Aviation, which builds and services jet engines.
What the spinoffs mean for GE’s Boston headquarters, where the company employs fewer than 200 people, remains to be seen. But any local impact will be muted by the divestitures and streamlining GE has already undergone under Culp and his predecessor John Flannery.
The grand headquarters along Fort Point Channel that then-CEO Jeff Immelt envisioned when GE moved here from Connecticut in 2016 is now roughly 100,000 square feet of rehabbed warehouse space. Hundreds of new tech jobs planned for the city never materialized — and the public subsidies offered to entice GE here have been paid back or relinquished. Even its sponsorship deal with the Celtics, which for a few years put the company’s famous logo on the team’s equally famous green jerseys, is over.
Culp, in an interview, said he doesn’t see this as the end of the road for the storied company, whose roots date back well over a century ago to inventor Thomas Edison. Rather, Culp positioned it as a new chapter for GE, which reported nearly $80 billion in revenue last year and remains valued at more than $120 billion.
“None of these businesses are going to be small,” said Culp, who plans to remain with GE through the spinoffs and oversee the aviation-focused business afterward. “We’re going to move forward and do what we’ve always done: compete, win, and serve. That’s what we’ve done all the way back to Edison. We’ll do it in a different form, but the DNA will never go away.”
Culp said GE remains committed to Massachusetts, where it employs about 3,300 people, mostly at the GE Aviation plant in Lynn. The questions of where the various corporate headquarters offices will ultimately sit have not been answered. But Culp vowed to stay in Boston, at least for the near-term.
“For the foreseeable future, I don’t plan to move my desk,” he said. “Boston has been a good home for us.”
The timing of the breakup announcement came as a surprise, but the idea certainly did not. As one of the country’s last remaining true industrial conglomerates and arguably its best known, GE has been long eyed as a possible candidate for this sort of split. During his brief tenure as chief executive, Flannery opened the door to such a move, and ended up agreeing to divest a number of business lines, such as lighting and train engines.
So why now? There are at least two big factors. By most accounts, the company is in stronger financial shape than it was when Flannery took the helm in 2017 or when Culp took over the following year. Back then, the company was still struggling under the weight of at least two major deals orchestrated under Immelt as well as big financial problems in its power and insurance businesses.
Culp has spent three years stabilizing the company and paring down debt. By the end of the year, he will have shaved $75 billion in debt since 2018, in part thanks to the just-closed sale of GE’s aircraft-leasing business. (About $65 billion in debt will remain.)
The businesses needed to show credit rating agencies and customers that they were strong enough to last for the long haul on their own, without a giant parent company to fall back on, said Nick Heymann, an analyst with investment bank William Blair & Co.
“What we’re trusting is that Larry knows these businesses have reached the proper tipping point where they can stand on their own financially,” Heymann said.
Another big reason for the spinoffs: GE’s listless stock price. GE investors clearly have been unimpressed with the current structure. No matter what moves Culp made, the stock has traded in a relatively narrow range, leaving GE’s market value a fraction of its peak in 2000, when Jack Welch presided over what was then a far-flung empire. (On news of the split Tuesday, the stock rose a meager 2.7 percent to close at $111.29 a share.)
Speaking Tuesday, Culp acknowledged the company has been “underinvested” by major shareholders who might prefer aviation, health care, or energy to a broad conglomerate. And some analysts said the split could spark their interest.
“This will . . . attract more investors interested in GE’s specific growth businesses without having to own the entire conglomerate structure,” said Mark Williams, a finance professor at Boston University’s Questrom School of Business. “Clearly for GE, the pieces spun out are worth more than the whole.”
The GE of today is certainly not small: The company employed 174,000 people across 170 countries at the end of last year, including 56,000 in the United States. However, that total number is just over half what it had roughly five years ago, before Flannery began divesting businesses.
About 47,000 people work for the Chicago-based health care division, while roughly 75,000 people work for GE’s power and renewable energy businesses that will be combined, along with the software business known as GE Digital. (The executive who will lead that group is currently based in Atlanta.) And about 40,000 people work for GE’s aviation business, which is headquartered in Cincinnati today.
Many questions still need to be sorted out. It’s too early to know whether the health care or energy businesses would keep the GE brand, for example, or what might happen to GE’s college-like campus in Crotonville, N.Y., used for training and corporate retreats.
Peter Cohan, a strategy lecturer at Babson College and a longtime GE shareholder, said he suggested such a breakup in 2007 when he met with GE’s then-chief financial officer, Keith Sherin, at the company’s Rockefeller Center offices in Manhattan.
Even back then, the concept of an industrial conglomerate was falling out of favor with investors and academics. One key argument for conglomerates — that unrelated business lines in different parts of the economy would balance each other out, and stabilize the company as a whole — turned out to be nonsensical, Cohan said.
And many have broken up over the years, including Connecticut-based United Technologies, which last year split itself into three pieces, much as GE is doing. The company’s core aerospace business merged with Raytheon and is now based in Waltham.
Now, it’s GE’s turn.
“GE was the last gasp of the conglomerate idea,” Cohan said. “The fact that GE is finally doing this is the ultimate punctuation mark at the end of this era of conglomerates.”