Why GE Asset Sale Matters So Much

Industrials

Published: June 9, 2015 10:40 am

Last Updated: July 16, 2015 1:46 pm

General Electric Co. (NYSE: GE) has made another huge step in its asset sales. The company announced an agreement to sell its U.S. Sponsor Finance business and a $3 billion bank loan portfolio to Canada Pension Plan Investment Board (CPPIB) in a transaction valued at roughly $12 billion.

Along with this transaction, GE Capital has announced sales of about $55 billion and is on track to execute sales of $100 billion by the end of 2015. The transaction, when completed, will contribute about $2.5 billion of capital to the overall target of approximately $35 billion of dividends expected to GE under this plan.

Keith Sherin, chairman and CEO of GE Capital, said:

We are excited to announce this agreement to sell Sponsor Finance to CPPIB. This represents an important milestone as we continue to execute on our strategy to sell most of the assets of GE Capital. The value we will achieve through this transaction is a testament to the depth of talent and expertise of the Sponsor team and our ability to execute high-value transactions quickly.

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As 24/7 Wall St has previously mentioned, GE’s accelerated asset sales may affect investors’ near-term returns, according to a recent research report from Moody’s Investors Service. The risks are manifest on both the financial and operational front, and the company’s plan to return to its industrial roots make take longer to produce the benefits GE has projected.

Among the challenges Moody’s sees are the accelerated sales of some $200 billion in GE Capital assets and the pending share exchange with Synchrony Financial (NYSE: SYF) as GE gets out of the retail finance business. The impact on shareholders comes as GE dials down its cash payments, which have relied on cash distributions from GE Capital. GE’s operational earnings and cash flow, absent the cash from GE Capital, do not yet support further increases in payouts to shareholders.

GE has also announced aggressive plans to cut costs, but unfortunately Moody’s notes, “[T]he long-dated nature of GE assets suggests that we won’t likely see the real benefits until 2018-2020.” The analysts believe that GE’s plan to become a more industrially focused enterprise is “directionally the right one, but the credit positive impact is longer term in nature.”

Shares of GE fractionally higher at $27.30 Tuesday morning. The stock has a consensus analyst price target of $30.15 and a 52-week trading range of $23.41 to $28.68.

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