Diversified conglomerate General Electric Company (GE – Analyst Report) recently revealed the exchange ratio for the share swap deal with Synchrony Financial (SYF – Snapshot Report) as part of its corporate strategy to further dissociate itself from the financial business. With the transaction, General Electric will shed an 85% ownership stake from the spun-off entity.
According to the terms of the deal, General Electric will offer 1.0505 shares of Synchrony Financial for each of its share. This equates to a buyback of about 671 million General Electric shares for approximately 705 million of Synchrony Financial shares upon full consummation of the exchange offer for over $20 billion. This in turn is likely to reduce the outstanding number of shares of General Electric by about 6.6%, thereby improving its bottom line on a per share basis. Investors reacted positively on the news as share prices witnessed an uptrend.
The strategic move was orchestrated in accordance with Chairman and CEO Jeff Immelts vision to transform the diversified conglomerate to an industrial-focused firm. Accordingly, General Electric is divesting most of the financial units under GE Capital, while retaining those units that directly relate to the core industrial operations of the company. These include financing verticals like GE Capital Aviation Services, Energy Financial Services and Healthcare Equipment Finance.
As of mid-October 2015, General Electric has signed agreements to dispose GE Capital assets worth $126 billion well ahead of the target and remains firm to achieve its divestiture target of $100 billion for the year. The company has also closed asset sale transactions worth $60 billion. The transactions will realign the company to a manufacturing-based entity with emphasis on big-ticket items such as aviation engines, drilling machines, generators, medical equipment and scanners.
With these restructuring initiatives, General Electric expects operating earnings from the industrial business to aggregate over 90% of its total operating earnings by 2018, up from 58% in 2014. The company continues to expect double-digit industrial operating EPS growth in 2015 and expects the industrial operating EPS to be within $1.13-$1.20 per share. At the same time, General Electric remains committed to achieve 2%5% industrial segment organic revenue growth; margin expansion; a smaller GE Capital; $16 billion in cash flow from industrial activities; and $30 billion cash return to shareowners.
We remain encouraged with the restructuring endeavors of this Zacks Rank #3 (Hold) stock. A couple of notable companies in the industry include Federal Signal Corp. (FSS – Snapshot Report) and Kopin Corporation (KOPN – Snapshot Report) , both carrying a Zacks Rank #2 (Buy).
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