General Electric Co will shed most of its finance unit and return as much as $90 billion to shareholders as it becomes a “simpler” industrial business instead of an unwieldy hybrid of banking and manufacturing.
The company on Friday outlined a restructuring plan that includes buying back up to $50 billion of its shares, selling about $30 billion in real estate assets over the next two years and divesting more GE Capital operations. GE stock jumped 8.5 percent.
“The stock has been under-owned by institutional investors, and that’s going to change now,” said Tom Donino, co-head of equity trading at First New York Securities.
The repurchase program, which will be partly funded by $35 billion through money returned from GE Capital, is the second-biggest in history after Apple Inc’s $90 billion plan. GE, which had 10.06 billion shares outstanding on Jan. 31, said it expected to reduce that by as much as 20 percent to 8 billion to 8.5 billion by 2018.
In all, GE said it planned to shed $275 billion in GE Capital assets. That includes the previously announced spinoff 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 $165 billion.
The company plans to keep $90 billion in finance assets directly related to selling its products such as jet engines, medical equipment and power generation and electrical grid gear.
GE has forecast earnings of $1.70 to $1.80 per share for this year, including 60 cents from GE Capital, but expects profit to be “substantially higher” in 2018, executives said on a conference call with analysts. Shrinking GE Capital will reduce earnings by 25 cents per share, they said, but the stock buybacks should offset that impact.
The company already had a significant number of inquiries about GE Capital units before Friday’s announcement, said Keith Sherin, the finance unit’s chief.