Change has become a constant at General Electric over the past three-plus years, and more is coming. Investors are ready for it, but they should remember that things don’t always unfold as expected, and that forks in the road can benefit the stock.
News Thursday highlights that. GE (ticker: GE) announced it will sell part of its steam-power business to the utility EDF (EDF.France). The French company will acquire GE’s nuclear steam turbine technology.
It’s a smaller deal. Financial terms weren’t disclosed. And GE stock isn’t moving. Shares were unchanged in premarket trading, while futures on both the S&P 500 and Dow Jones Industrial Average were nearly flat.
Still, investors should take note. Back in November, GE announced plans to break up into three companies over the coming two years: One dedicated to healthcare, one to aerospace, and another to power. The healthcare business was due to be separated in 2023. The power business and remaining aerospace business will be split in 2024.
That’s the plan, but Thursday’s news shows things can change. The nuclear steam turbine business would have been part of the GE Power portfolio, which also includes business such as natural gas and wind power turbines. But someone came along with a better offer.
That type of thing can happen again, now that GE has announced its transformation plan. Transactions that could move the stock would include sales of larger businesses or combinations of operations.
Barron’s asked CEO Larry Culp about the possibility of bigger deals that would modify or replace the breakup plans, back in January. We also asked if anyone was calling to inquire about portions of GE’s business. “We’ll be open-minded if somebody has got a better idea,” said Culp, adding he was focused on the split-up process put in place.
GE might stick to its three-way split up, but the coming separations of GE’s power, healthcare and aviation businesses are only the base-case scenario. Other outcomes are like a free call option for investors holding GE stock. If a better deal comes along, they can benefit.
This sale will generate a noncash charge of $700 to $800 million. That means, essentially, that GE is getting less for its assets than the value reflected on its books. That shouldn’t be a big surprise to GE investors. The steam power business, which mainly services coal and nuclear power operators, has been challenged for a long time.
Coming into Thursday trading, GE stock was down about 8.5% since management announced the spinoff plans on Nov. 9.The S&P 500 is down 2.4% over the same span.
So keep hanging on unskilled T’s hoping for the good ol American dream.