General Electric's Shares Jump 10%
GE shares jump 10% as restructuring plan promises $90bn bonanza for shareholders.Reuters

Shares in General Electric shot up 10% on 10 April in New York trade, on news that the American conglomerate's post-crisis restructuring plan will see it return as much as $90bn (£61bn, €85bn) to shareholders.

GE's stock finished 10.8% higher on Friday (10 April) after the firm outlined a restructuring plan to eventually become a "simpler" industrial business focusing on jet engines, oil drilling equipment, electrical grid gear, and medical devices, from a hybrid of a banking and manufacturing conglomerate.

The reorganisation will begin with the sale of about $30bn in real estate assets over the next two years, buying back up to $50bn of its shares and divesting more GE Capital operations.

The stock repurchase programme will be partly funded by money returned from GE Capital.

GE, which had 10.06 billion shares outstanding on 31 January, said it expected to reduce that by as much as 20% to eight billion to 8.5 billion by 2018.

Private equity giant Blackstone Group and Wells Fargo confirmed that they were buying most of the assets of GE Capital Real Estate for about $23bn

Keith Sherin, the finance unit's chief, said the company already had a significant number of enquiries about GE Capital units.

In all, GE said it planned to shed $275bn in GE Capital assets, Reuters reported. That includes the previously announced divestiture of its Synchrony Financial credit card unit, the real estate transaction announced on Friday, and future sales of commercial lending and consumer banking businesses with assets of about $165bn.

GE will take after-tax charges of about $16bn for the restructuring in the first quarter, of which about $12bn will be non-cash.

Executives speak

GE executives, speaking to analysts on a conference call on 10 April, forecast earnings of $1.70 to $1.80 per share for 2014, including 60 cents from GE Capital, but said profit could be "substantially higher" in 2018.

Shrinking GE Capital will reduce earnings by 25 cents per share, they said, but the stock repurchase programme should offset that impact.

Chief Executive Jeff Immelt told investors the company will try to generate 90% of its profits from industrial operations by 2018. He had previously forecast that share to grow to 75% by 2016 from 55% in 2013.

Immelt and other GE executives also said they planned to spend $3bn to $5bn a year on industrial acquisitions, Reuters reported.

Executives gave several reasons for GE's accelerated retreat from financial businesses. One was that since the financial crisis, it had become more difficult for GE to fund its lending operations.

Analysts' take

Sanford Bernstein analyst Steven Winoker wrote in a 10 April note to clients: "What we did not expect was the speed with which management would move to undertake this transformation.

"We view today's announcement as an overwhelming positive for the company."

During the conference call, Barclays analyst Scott Davis told executives that while he had been a critic, "this is good stuff ... I guess you can keep your jobs a little longer."