The General Electric Split

The editors of the Wall Street Journal remark on the reorganization of General Electric:

How the mighty have fallen—and perhaps will rise again. On Tuesday General Electric CEO Larry Culp announced a split-up of its aviation, healthcare and energy units, capping two decades of market decline. Markets can be unforgiving, but they are the best allocators of capital.

“By creating three industry-leading, global public companies, each can benefit from greater focus, tailored capital allocation, and strategic flexibility to drive long-term growth and value for customers, investors, and employees,” Mr. Culp said in announcing the separation of assets. At least that’s the hope. Shareholders cheered the breakup by driving GE’s stock price up 2.65%.

The Boston-based conglomerate founded by Thomas Edison has in recent years shed its locomotive, consumer appliances, lighting, oil and gas and aircraft-leasing businesses to pay off tens of billions of dollars of debt. Much of its problems stem from its legacy GE Capital division whose bad financial bets nearly sunk the company during the financial crisis.

For decades GE was a symbol of U.S. manufacturing and management prowess, and former CEO Jack Welch was hailed as a business genius. In 2000, the year before Welch retired, GE’s market capitalization hit nearly $600 billion. It’s now $122 billion, a tragic decline for the investors and retirees who had relied on its steady returns. During the bubble years GE relied on swelling profits from its financial arm to stoke shareholder returns.

My experience has been that a move like this is usually a prelude to selling off more saleable portions of the business and, occasionally, abandoning those with less potential. I’ve seen it at close hand 2, 3, 4 times.

Can someone explain to me what’s actually happening with GE?