Industrial goods manufacturer General Electric Company GE has recently inked agreements with three separate buyers to divest majority of GE Capital’s restaurant franchise financing assets in the U.S. The transactions are expected to be completed by the third quarter of 2016.
General Electric sold assets in the Southwest and Southeast to First Horizon National Corporation, a Tennessee-based bank with assets of approximately $27 billion. Assets in the Midwest and part of the West were sold to Wintrust Financial Corporation, an Illinois-based bank with approximately $23 billion in assets. GE Capital assets in the East were sold to Sterling National Bank, a $13-billion-asset holding bank headquartered in New York.
The transactions included about $1.4 billion in ending net investment (ENI) and are likely to yield $0.2 billion of capital to General Electric. Since Apr 2015 till date, GE Capital has inked sale agreements worth approximately $180 billion in ENI, of which it has already completed deals worth $156 billion. By the end of 2016, the company expects to sell $200 million of GE Capital assets across the world.
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, significantly up from 58% in 2014.
General Electric is actively pursuing massive restructuring initiatives in order 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.
During first-quarter 2016, General Electric sold its appliance business to Haier Group, a Chinese multinational consumer electronics manufacturing firm. The transaction, scheduled to be completed by the second quarter, unlocked incremental value by allocating more resources to high-growth core industrial businesses. Other notable divestures during the quarter include the sale of Asset Management business to State Street Corporation for approximately $485 million, GE Capital’s Franchise Finance U.S. hotel business to Western Alliance Bank, and Canadian Franchise Finance business to an undisclosed buyer.
We remain encouraged by the restructuring endeavors of this Zacks Rank #4 (Sell) stock. Some better-ranked companies in the industry include Honeywell International Inc. HON, Carlisle Companies Incorporated CSL and Leucadia National Corporation LUK, each carrying a Zacks Rank #2 (Buy).
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