Industrial goods manufacturer General Electric Company GE recently inked a definitive agreement with asset management firm State Street Corporation to divest its Asset Management business for approximately $485 million. The news seems to have struck a right chord with the investors and propelled General Electric shares to a new 52-week high of $31.95 during trading hours yesterday.
The transaction will augment the asset management portfolio of State Street Global Advisors, the investment management division of State Street Corporation, by $100 billion. The deal, expected to be completed by the third quarter of 2016, will offer complementary businesses to State Street Global Advisors. These include alternative assets and Outsourced Chief Investment Officer mandates, the GE pension plan and other benefit plans managed by GE Asset Management’s third-party client base.
With $2.3 trillion assets under management, State Street Global Advisors has an extended distribution network and offers a perfect platform for a seamless integration of the acquired assets and human capital. The combined entity would have a perfect blend of businesses to serve a wide array of customers across both the private and public sectors.
The divesture of GE Asset Management is in tune with the corporate strategy of General Electric to focus on its core industrial businesses. General Electric is engaged in massive restructuring initiatives to create a simpler and nimbler firm. From a classic conglomerate with diversified business interests in financial services, media, industrial and technology-based operations, the company is pruning its operating portfolio to focus on core manufacturing businesses with a digital edge.
Since Apr 2015, GE Capital has inked sale agreements worth approximately $161 billion, of which it has completed deals worth $138 billion. The company intends to sell approximately $200 billion of GE Capital assets globally by the end of 2016. The transactions are in conformity with the corporate strategy of building a manufacturing-based entity with emphasis on big-ticket items such as aviation engines, drilling machines, generators, medical equipment and scanners. With these restructuring initiatives, General Electric expects operating earnings from the industrial business to comprise over 90% of its total operating earnings by 2018, up from 58% in 2014.
The corporate restructuring activities have also positioned General Electric to probably become the first company to drop its too-big-to-fail label. We remain impressed with the continued efforts of this Zacks Rank #3 (Hold) stock to sustain its growth momentum in the near future. Some better-ranked stocks in the industry include Carlisle Companies Incorporated CSL, CLARCOR Inc. CLC and Honeywell International Inc. HON, each carrying a Zacks Rank #2 (Buy).
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