GE’s spin out of GE Healthcare company

General Electric this week spun off its healthcare business as a separate company, a move that could bolster what has been a bright spot in GE’s business portfolio.

The company said Kieran Murphy, president and CEO of GE Healthcare, will continue to lead GE Healthcare as the standalone company.

“GE Healthcare’s vision is to drive more individualized, precise and effective patient outcomes,” Murphy said in a statement.

As he sees it, the independence will enable greater flexibility and opportunities for growth and innovation.

“We will build on strong customer demand for integrated precision health solutions and great technology with digital and analytics capabilities as we enter our next chapter,” Murphy added.

The spinoff, however late, promises to make investments in GE more pure plays, which investors find easier to understand and to value. But for GE Healthcare, the real growth will be in less acute settings, and GE needs to acknowledge that trend in their strategy.

General Electric‘s (GE) decision to spin off its 3 major divisions comes amid a small burst of such “de-conglomerations”. It wasn’t a surprise to most analysts and industry watchers; indeed, many wonder why it took so long to get there. The conglomerate structure forced investors to buy into some of GE’s promising business at the cost of also investing in its weaker ones. The other downside of the conglomerate structure is that as the corporation grew, the complexity involved in decision making began to outweigh the potential for synergy across businesses.

This spinoff, however late, promises to make investments in GE more pure plays, which investors find easier to understand and to value. Investors will be able to own the aviation and healthcare franchises without having to own GE’s more challenged businesses.

In 2020, GE’s healthcare division brought in $18 billion in revenue, 23% of GE’s total of 79.6B. It develops MRI, CT scan, X-ray machines, and other diagnostic devices. It also sells software to be used for clinical monitoring, ICU management, and anesthesia delivery. Their product focus enables clinicians to make faster, more informed decisions through intelligent devices, data analytics, applications, and services.

The company is a leader in precision health and applications of digital technology to drive productivity and improve outcomes. Medical imaging, which constitutes about two-thirds of GE Healthcare’s revenue base, is increasingly commoditized, but one where GE also benefits from intangible assets, scale, and switching costs.

In 2020, the company bulked up its imaging capabilities and bought several assets that brought new technologies under its wing. One significant one was their acquisition of Prismatic Sensors. The application of Prismatic’s photon-counting technology positions them for a technological lead in the race to improve the capabilities of CT technology space.

GE’s work in AI is already being used to deliver quantum improvements in magnetic resonance technology.

GE expects to generate cash from the disposition of approximately 20 percent of its interest in the healthcare business and to distribute the remaining 80 percent to GE shareholders through a tax-free distribution over the next 12 to 18 months.

GE chairman and CEO John Flannery stated in a statement that GE would focus on aviation, power and renewable energy and create a “simpler, stronger, leading high-tech industrial company.” GE plans to reduce debt by approximately $25 billion by 2020 while maintaining more than $15 billion of cash on the balance sheet, he added.