General Electric’s Healthcare Spin-Out Latest in Company Transformation
General Electric recently announced the company would spin off its health-care business and unload its ownership in Baker Hughes, an oil services company, as part of a restructuring that will transform the corporate giant. GE’s CEO John Flannery could gain some insight on how these types of moves can play out by giving former Hewlett Packard CEO Meg Whitman a call.
In the corporate world, breakups are common but don’t always go as planned.
When HP, then with $100 billion in revenue, underwent its massive breakup, it was a smaller, tech version of GE. It was involved in nearly every part of the tech business: PCs, printers, servers, supercomputers, software, storage, networking, services and other businesses. But in 2014, the then-struggling giant was faced with questions of what business it was really in and decided to split itself in half.
The theory behind HP’s restructuring was that its PCs and printer businesses, separated into HP Inc., would focus on generating cash instead of growth, while Hewlett Packard Enterprise, consisting of HP’s software and services, would be the growth business. However, after the dust settled on the spin-off, the two businesses found themselves on opposite paths.
Today, HP Inc.’s market cap is about $37.2 billion, while HP Enterprise has a market value of about $22.8 billion. HP Enterprise has continued to struggle since the breakup, only recently starting to show signs of improvement. In contrast, HP Inc. has shown both signs of innovation and growth, such as its efforts in 3D printing and pulling its printer business out of a slump.
Meanwhile at GE, fresh off being removed from the Dow Jones Industrial Average, Flannery is proceeding to put the company through a major overhaul, including selling off assets. Flannery plans to focus the core GE on aviation, power and renewable energy. While spinning out healthcare and getting out of oil could potentially help cut GE’s debt load, the company should be prepared for unforeseen challenges and opportunities along the way.
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