When John Flannery took over as the chief executive of General Electric in August, he immediately declared that he wouldn’t be nostalgic about the industrial giant’s storied past when reshaping the company for the future.
He wasn’t kidding.
General Electric said Tuesday that it planned to spin off its enormous health care business and sell its multibillion-dollar stake in Baker Hughes, a major producer of oil-field equipment, as part of a sweeping reshaping of the embattled industrial titan.
The announcement provides a blueprint for GE’s future and is the culmination of a top-to-bottom rethinking of the company led by Flannery. “This is the conclusion of that review,” he said in a conference call with analysts. “This is our path forward.”
Flannery’s latest moves are a last farewell to a bygone conglomerate vision. Over the years, GE added businesses as varied as television programming, with NBC Universal, and home-mortgage lending. And the company did not just manufacture products but also a large corps of elite managers who it trained to apply managerial skills to any business. GE was studied in business schools, extending its influence across U.S. businesses.
While pulling out of the two businesses will take time, GE’s long-term strategy is now clear. It will hold onto three major operations — jet engines, electric-power generators and wind turbines — that accounted for 60 percent the company’s $122 billion in revenue last year.
The current plan, Flannery said, is to create “a simpler, stronger and more focused company.”
GE is adapting to a changed business world and its own missteps. GE’s big electrical-power generator business is in the midst of a painful turnaround, having badly misjudged the market and produced too many gas turbines.
Earlier this year, the company took a multibillion-dollar charge and set aside $15 billion to pay for obligations held by its finance unit, mainly on long-term care insurance policies. GE has steadily disposed of assets in its once-huge finance arm, GE Capital, and the recent troubles came as a surprise.
In the past year, GE stockholders suffered as the value of their shares fell by half. The announcement of the company’s plan Tuesday came on the same day GE’s stock was officially dropped from the Dow Jones industrial average, having been one of the Dow index companies since 1896.
GE’s stock price rose by more than 7 percent after the announcement.
“GE did what it had to do to move forward,” said Steven Winoker, an analyst at UBS. “The vision makes a lot of sense.”
Shedding the health care business and its majority holding in Baker Hughes will not be hasty fire sales. Spinning off the health care business as a separate company, GE said, will likely take 12 to 18 months; pulling out of Baker Hughes could take up to three years.
The health care unit, which reported $19 billion in revenue last year, makes equipment ranging from MRI machines to products that aid cellular-technology research.
GE will also sell off its 62.5 percent stake in Baker Hughes, gained in a merger of its oil and gas division with that publicly traded business in 2016.
Jet engines, electric-power generators and wind turbines, Flannery said, share similar technologies for power generation and propulsion. Their products are long-lived industrial equipment and GE holds strong market positions. There are 65,000 GE jet engines in use worldwide, 7,000 power generators and 35,000 wind turbines.