A New Chapter for General Electric as Company Finalizes Demerger

Some American companies are associated with the country, going back decades. Wal-Mart is one of these companies, along with McDonald’s. Some companies go back even further, though, and are a part of actual American history. 

A Nineteenth Century Relic

General Electric is one such company. Founded in 1892, the company was incorporated in the state of New York and headquartered in Boston during the entirety of its existence. The company had several divisions, including aerospace, energy, healthcare, and finance. 

The company was founded by Thomsas Edison, the inventor of the phonograph, the motion picture camera, and early versions of the electric light bulb. These were inventions that had a widespread impact on the modern industrialized world, and his impact has carried on through the decades since he passed away. 

Different Edison Businesses

Edison had multiple business interests in electricity-related companies in the late nineteenth century, including Edison Lamp Company, which was a lamp manufacturer in East Newark, New Jersey, and Bergmann & Company, which was a company that manufactured electric lighting fixtures, sockets, and other electric lighting devices. . 

Edison’s research into electricity was funded by Drexel, Morgan & Co., a company founded by J.P. Morgan and Anthony J. Drexel. They also assisted in merging several of Edison’s separate companies, and forming a new corporation called Edison General Electric Company. 

A Stock Market Newbie

General Electric was one of the original 12 companies that was listed on the Dow Jones Industrial Average in the newly formed stock market of the United States. It proceeded to stay on the list for 122 years, though not continuously. 

Throughout the years of its existence, General Electric grew as a company and consolidated other businesses under the General Electric umbrella in the pursuit of bigger and better. It even had a hand in the formation of NBC, through a company they founded called the Radio Corporation of America. GE ultimately was found to have violated antitrust regulations in forming RCA, and was forced to divest that arm of its business from General Electric. 

An Enormous, Unwieldy Company

The expansions of GE throughout the years led to a company that was expansive, enormous, and unwieldy for its managing board. It’s understandable, for a company that had its fingers in almost every industry imaginable, including electric, appliances, television, and film. 

This is why, in November of 2021, GE announced that the company was going to be starting a new chapter in its history. Rather than a new merger, though, they announced a break-up of the company, the execution of which was intended to be carried out in several stages.

A Demerger Years in the Making

The initial split took place in January of 2023, with the creation of GE HealthCare, bringing together all the health care activities from the former General Electric. The final split will take place this coming week, with General Electric fully disappearing with the creation of GE Vernova and GE Aerospace. 

GE Aerospace will be the new name of the late General Electric, and Vernova will be focusing on energy activities. Each of the new companies will have a specific focus when it comes to the companies they take from the demerger, allowing for better specification and compartmentalization. 

No Bigger Holding Company

The demerger means that there will be no holding company that oversees all three. Each of the three companies will publish their results and reports independently of each other, and each will have their own listing in New York. One will be listed on Nasdaq, and the others will be listed on the NYSE. 

General Electric released a statement regarding the split when the announcement was initially made in 2021. “As independently run companies, the businesses will be better positioned to deliver long-term growth and create value for customers, investors, and employees.”

Reasons Behind the Split

Among the “many reasons” for the demerger was a desire to simplify the company, by getting rid of non-core activities and improving performance by withdrawing from some of the low-growth or low-profitability sectors. “Within this, there is usually always a value play that either bolsters the share price or creates more value for investors and owners,” Neil Saunders of GlobalData said, regarding the decision. 

“Managing multiple divisions across disparate areas is harder for a board of directors,” he continued. “It is also harder in terms of communicating vision and strategy to investors.” This is a very reasonable approach to business, according to many experts, and GE is not the only company to invest in a split in this way. 

Another Conglomerate Splits

The conglomerate 3M – which manufactures Scotch tape and post-it notes, among other things – has also taken the same route as the GE demerger. In July of 2022, the company announced the separation of its health-related activities from the company, to operate under a new company titled Solventum.

The company began trading on the stock exchange this past Monday. “This is an important day for 3M and Solventum,” said Mike Roman, 3M chief executive. “Both companies are positioned to pursue their respective growth and tailored capital allocation plans.”

Distributing Parent Company Shares

Much like GE, 3M distributed all the shares in the new company to its shareholders. Both firms gave one share in the “child company” for every four shares held in the “parent company,” in an attempt to distribute the shares equitably. 

In these circumstances, though, the parent company can retain a stake in the children companies, usually with the intent to monetize at a later date. This is what General Electric did with GE HealthCare, in which it retained a 19.9% stake. 

Other Companies Demerging

The GE demerger is the latest of various companies that have chosen to spin off and split in recent years. Johnson & Johnson, for example, has retained its business-to-business activities, but created the listed Kenvue for its consumer products. 

The breakfast giant Kelloggs is another example. In June of 2021, the company announced its intention to split into three companies. Ultimately, though, it only split into two: WK Kellogg for cereals, and Kellanova for snacks, which came into being in October of 2023. 

Disadvantages to Splitting

“Kellogg’s is a good case in point with the company splitting off its low-growth cereals business from the very fast-growing snack’s business,” said Saunders from GlobalData. “But it’s not without its disadvantages.

Some of the disadvantages include the loss of economies of scale, resulting from the sharing of certain structural functions like accounting and human resources, or a size effect, as is the case with health insurance. Weighing these pros and cons is part of running an enormous business in the era of antitrust lawsuits, and in many cases, these disadvantages are worth it. 

More Demergers on the Way

GE is not the last company that will complete or begin a demerger in the coming months and years. According to CNBC, there are approximately 36 company spin-offs planned worldwide by the end of 2024. 

Recently, the British hygiene and food giant, Unilever, announced its intention to spin off its ice cream businesses. This includes brands like Ben and Jerry’s and Magnum, following disappointing sales during the entirety of 2023. 

A Sad, But Necessary Move

Changing tactics in an evolving business landscape is important for any company to be successful. Though General Electric has a storied history and is one of the biggest stories of American manufacturing success, it’s only one chapter in the larger book of business. 

The demerger, though a somewhat melancholy end to nearly 140 years of American business through General Electric, will pave the way for the company to do new and better things in the future. Bigger isn’t always better, and refocusing will likely be the correct step for the former General Electric.