The benefit of being a conglomerate is that some businesses may offset weakness in other units over the course of the business cycle. Without argument, the conglomerate can also prevent a company from being taken down by a single business unit. In the case of General Electric Co. (NYSE: GE), it turns out that breaking up the conglomerate is the new strategy now that it has been kicked out of the Dow Jones industrial average.

GE has completed its strategic review and the conglomerate’s path forward is to focus on Aviation, Power and Renewable Energy. GE has also confirmed that the company is spinning off its Healthcare unit to shareholders. Approximately 20% of the new equity will remain at GE, and the other 80% or so will go directly to shareholders.

GE Healthcare is now led by Kieran Murphy, who comes from a background in the faster-growing biological production equipment. It is also no secret that GE has been an acquirer of health care assets and companies over the years.

Healthcare revenue is expected to be roughly $20 billion in fiscal year 2019 revenue. Diagnostic Imaging is close to $13 billion of that revenue, the Life Science tools effort revenues were close to $7 billion, and operating profit is closer to 18%.

And on GE breaking up, the company has committed to breaking out energy via Baker Hughes, a GE Company (NYSE: BHGE). GE has a market capitalization of roughly $111 billion, versus $36.7 billion for Baker Hughes.

John Flannery, board chair and chief executive of GE, said of the plans:

Today marks an important milestone in GE’s history. We are aggressively driving forward as an aviation, power and renewable energy company—three highly complementary businesses poised for future growth. We will continue to improve our operations and balance sheet as we make GE simpler and stronger… GE Healthcare and BHGE are excellent examples of GE at its best—anticipating customer needs, breaking barriers through innovation, and delivering life-changing products and services. Today’s actions unlock both a pure-play healthcare company and a tier-one oil and gas servicing and equipment player. We are confident that positioning GE Healthcare and BHGE outside of GE’s current structure is best not only for GE and its owners, but also for these businesses, which will strengthen their market-leading positions and enhance their ability to invest for the future, while carrying the spirit of GE forward.

Janney Life Sciences has opined that GE’s health care operation was about 17% of revenue and 19% of operating profit. The firm noted a $70 billion unit value:

Looking at our Life Science peers, GE Healthcare would carry up to at 20x multiple on op profit ($3.5) or about $70 billion. Consequently, GEH may be about 64% of GE equity value. Healthcare seems to represent significant potential value and a source of some cash for the parent.

Credit ratings agency Fitch Ratings has said that GE’s health care spin-off will not have an impact on its ratings, while it does narrow the company’s operating profile. Moody’s even opined that the plans to sell health care and energy will be a net credit-positive event. Still, Moody’s also maintained that GE’s ratings outlook remains negative due to continued weakness in earnings and cash flows expected to last into 2020. S&P has warned that GE could face a credit rating downgrade amid the restructuring plan.

GE shares closed down 2.3% with a weak market on Monday, and its shares were indicated up almost 7% at $13.62 on Tuesday’s separation news.

This is just one step closer to an outright breakup of what used to be one of the greatest success stories of American corporate dominance. Nothing lasts forever.

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