on november 9 2021 general electric nyse ge  9313 market capitalization 1023 billion announced its plan to form three investmentgrade industryleading global public companies focused on the growth sectors of aviation healthcare and energy ge intends to execute a taxfree spinoff of the healthcare business in early 2023 creating a pureplay company at the center of precision health and expects to retain a 199 stake in spinco this will be followed by combining ge renewable energy  ge power and ge digital into one business and then pursuing a taxfree spinoff in early 2024 following these transactions ge would operate as a leading aviationfocused company the separation will result in three global industry leading companies with distinct business characteristics capital structure and investment profiles the proposed spinoffs of healthcare spinco 1 and the renewable energy and power spinco 2 business are intended to be tax free for ge and ge shareholders for us federal income tax purposes the company expects to incur onetime separation transition and operational costs of 2 billion and tax costs of less than 05 billion depending on the specifics of the transaction moreover incremental annual costs of 150 200 million are expected for each of the two spin offs initially which is likely to reduce over time the company and its businesses will continue to serve ge’s partners and customers throughout this transition each spinoff is subject to the satisfaction of customary conditions including final approvals by ge’s board of directors private letter rulings from the internal revenue service andor tax opinions from counsel the filing and effectiveness of form 10 registration statements with the us securities and exchange commission and satisfactory completion of financing transactions are not subject to bondholder consent ge intends to execute the spinoffs of healthcare in early 2023 and the renewable energy and power business in early 2024 ge chairman and ceo h lawrence culp jr will serve as nonexecutive chairman of the ge healthcare company upon its spinoff he will continue to serve as chairman and ceo of ge until the second spinoff renewable energy and power business and then will lead the ge aviationfocused company remainco going forward peter arduini will assume the role of president and ceo of ge healthcare effective january 1 2022 scott strazik will be the ceo of the combined renewable energy power and digital business while john slattery will continue as ceo of aviation business the respective capital structures brands and leadership teams for each independent company will be determined and announced later paul weiss rifkind wharton  garrison llp is serving as lead legal counsel evercore and pjt partners are the lead financial advisors to ge on the transaction additionally ge has also received legal advice from gibson dunn  crutcher llp and financial advice from bofa securities and goldman sachs  the separation announcement broadly received positive reception from most wall street analysts and the stock popped 26 on 119 however the stock has declined 163 since the day of the announcement as investors fear regarding covid19’s impact on travel was amplified by the spread of the omicron variant moreover substantial onetime costs and the spinoff completion timeline early 2023 and 2024 completion could create near term pressure on ge stock due to disruptions in the year of transition 2022 ge’s proposed split into three publicly traded companies is similar to the breakup of other large diversified companies the transaction is expected to create value for the shareholders by reducing the conglomerate discount on the ge share earlier in 2018 since the company was facing multiple crises including trouble at its financial services division and power business ge brought in h lawrence culp jr as the company’s ceo who had previously reshaped danaher corp  he swiftly stabilized and turned around ge by selling major businesses to cut ge’s bloated debt including the sale of the bulk of the ge capital finance arm pushing operational fixes to bolster cash flow and profits at its industrial divisions and cutting the dividend to a token penny a share it is worth noting that ge is on track to reduce debt by more than 75 billion by the end of 2021 compared to 2018 and is now on track to bring its net debt to ebitda ratio to less than 25x in 2023 ge will use proceeds from the recently closed ge capital aviation services gecas transaction 30 billion to significantly reduce debt in the near future and remains committed to continued debt reduction along with strategic capital deployment the company has also taken decisive action to derisk itself by stabilizing insurance mitigating funding risks with the capital contributions to date and focusing on operational improvements such as its investment portfolio realignment strategy moreover ge has maintained strong liquidity and better cash management driving lower more predictable cash needs by eliminating onbook factoring and discontinuing the remaining offbook factoring program of 2 billion ge is expected to continue to drive operating improvements for sustainable profitable growth and the company now expects to achieve highsingledigit free cash flow margins in 2023 resultantly the company is in a strong position to execute this plan to form three wellcapitalized investmentgrade companies upon separation each company will have the strategic focus nimbler organizational  operating model and financial flexibility to deliver innovative customer solutions and drive longterm value the three independent companies will be appropriately capitalized with the financial flexibility to take advantage of future growth opportunities the separation will provide each company the ability to tailor its capital structure and its capital allocation decisions to its particular business model as part of that capital allocation independence each company will be able to pursue its growth strategies through ma supported by their independent equity currencies each business will also have the opportunity to attract a distinct shareowner base aligned to its growth profile and capital allocation priorities more appropriately aligned management and employee incentives all of which we believe will lead to a stronger business and create greater value over the long term moreover each independent company is expected to have a strong balance sheet and maintain an investmentgrade credit rating postseparation healthcare will be a strong global precision health franchise focused on innovationdriven growth similarly renewable energy and power company will be the world’s most diverse energy franchise focusing on operational performance and innovative breakthrough technologies to provide power while reducing emissions notably ge remainco will become a more focused simpler stronger aviation franchise winning in growing aerospace  defense markets with 37000 commercial engines 60 haven’t seen their second shop visit and 26000 military engines ge aviation is wellpositioned to support its customers through the upcycle furthermore the company will retain other assets and liabilities of ge today including runoff insurance operations upon closing the healthcare transaction ge expects to retain a stake of 199 in the healthcare company to provide capital allocation flexibility ge also intends that healthcare will issue debt securities the proceeds of which will be used to pay down outstanding ge debt ge’s stakes in aercap baker hughes  and the postsplit ge healthcare will give the company the financial flexibility to ensure that its renewable energy and power business can also have an investmentgrade capital structure when they are spun off headquartered in boston general electric is a global hightech industrial company that operates worldwide through its four industrial segments viz power renewable energy aviation and healthcare the power segment offers technologies solutions and services related to energy production including gas and steam turbines generators and power generation services the renewable energy segment provides wind turbine platforms hardware and software offshore wind turbines solutions products and services to the hydropower industry blades for onshore and offshore wind turbines and high voltage equipment the aviation segment provides jet engines and turboprops for commercial airframes maintenance component repair and overhaul services as well as replacement parts additive machines and materials and engineering services the healthcare segment provides essential healthcare technologies to developed and emerging markets and has expertise in medical imaging digital solutions patient monitoring and diagnostics drug discovery and performance improvement solutions that are the building blocks of precision health the company serves customers in over 170 countries its manufacturing and service operations are carried out at 82 manufacturing plants located in 28 states in the usa and puerto rico and at 149 manufacturing plants located in 34 other countries the company reported consolidated revenues of 796 billion in fy20 ge healthcare provides essential healthcare technologies to developed and emerging markets and has expertise in medical imaging digital solutions patient monitoring and diagnostics drug discovery and performance improvement solutions that are the building blocks of precision health products and services are sold worldwide primarily to hospitals and medical facilities the healthcare segment recorded sales of 180 billion in fy20 postseparation ge healthcare will be a strong global precision health franchise focused on innovationdriven growth with 4 million installations worldwide serving more than 1 billion patients in executing more than 2 billion procedures per year ge is at the nexus of most care pathways the demand is expected to be robust supported by powerful secular growth drivers in the longterm through the cycle the company anticipates market growth of midsingle digits with operating margins in the high teens to 20 while converting more than 100 of free cash flow postseparation the new company will include renewable energy power and digital businesses this business possesses a unique offering with the world’s most powerful wind turbines and most efficient gas turbines as well as technology to modernize and digitize the grid the energy transition represents the largest market opportunity for digital with vertical market solutions in grid and power generation digital now a 1 billion business with over 40 recurring revenue is focused on improving profitability renewable energy  power segments recorded sales of 333 billion in fy20 with an installed capacity of 400 gigawatts of renewable energy and 7000 gas turbines the company is providing 13 of the world’s electricity together with its customers in the longer term through the cycle the company expects market growth of lowsingledigits with operating margins in the midto highsingledigit range while converting 80 to 90 of free cash flow