GE’s CFO Plays Key Role in Company’s Three-Way Split

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Carolina Diebeck Happy will be tasked with ironing out the many details of the impending separation

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GE said the move is aimed at improving the performance of various entities and increasing their appeal to shareholders. Chief executive Larry Culp on a call with analysts said the changes, which come after years of reduction in debt, costs and assets, would provide each of the three businesses with more tailored capital structures and capital allocation structures.

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Ms. Diebeck Happy, who has been the Group’s Head of Finance since early 2020, has been instrumental in reducing the company’s debt levels. Analysts and investors said they would be tasked with ironing out many of the details of the spinoff transaction, including defining the capital and tax structures of the new entities.

“It will take a tremendous amount of work between now and then to achieve this,” said David Green, a portfolio manager at Hotchkiss & Wiley Capital Management LLC, according to data provider FactSet. GE said Ms. Diebeck Happy will work on a plan to separate the companies structurally and financially, along with pursuing other projects such as automation in financial operations.

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Ms. Diebeck Happe, a Swedish native, joined GE after spending nearly a year as finance head of Denmark-based shipping company AP Möller-Marsk A/S and 16 years at Asa Abloy AB, a Swedish manufacturer of locks and entry systems . Including seven of its CFOs. Since she became GE’s CFO, Diebeck Happy has worked to reduce working capital, improve inventory, and increase cash flow.

The company, which is working to reduce its debt by more than $75 billion by the end of the year, is targeting gross debt of less than $45 billion and net debt of less than $35 billion by 2023. Gross debt refers to GE’s total debt, while net debt is gross debt minus the company’s cash and cash-like assets.

Part of the cut will come from cutting GE’s stake in oil-field-services company Baker Hughes. Co.

and aircraft-leasing firm AirCap Holdings NV, as well as in its healthcare business. GE said Tuesday that it will retain a 19.9% ​​stake in the healthcare business at the time of the spinoff.

“That’s what we’re seeing happening in 2023 and that’s how we achieve our delivering goals,” Diebeck Happy said on Tuesday on the call with analysts. GE on Wednesday offered to buy back $23 billion in bonds — the largest such tender in capital markets history, the company said, as part of its plan to reduce debt.

Analysts and investors said splitting up the business could alter how much debt the different entities would be able to take out because of their different income profiles. For example, GE’s electricity business as a stand-alone company may face higher borrowing costs than part of the group, even though the growth will be modest, T. David Giroux, head of investment strategy at Rowe Price Group. Inc.

According to FactSet, the investment-management firm has 9.25% of GE’s shares outstanding.

“The cost of debt on energy may be slightly higher but there will be minimal leverage,” Mr. Giroux said. Under Mr. Kalp, GE has made progress in repairing its balance sheet, Mr. Giroux said. GE said Tuesday that all three businesses are targeting investment-grade credit ratings.

The dismantling of today’s GE would also change its complex tax structure in the US and abroad. Ms. Diebeck Happe said Tuesday, referring to GE’s future tax structure, “we need to work through the structures of each institution and then see what the footprint will look like.”

The CFO will also allocate the company’s cash to its different businesses. Analysts at Moody’s Investors Service said in a note that GE’s total cash balance at the end of September stood at $25 billion and was further increased by selling a majority stake in its aircraft leasing and financing business to AirCap, which was completed earlier this month. happened. , GE was left with a 46% stake in the merged entity and plans to reduce it in order to issue cash and less debt. GE said Tuesday that it is on track to generate more than $7 billion in free cash flow in 2023.

Another task for a company’s management would be to divide its employees. GE, which had about 174,000 employees at the start of the year, has cut its head count in recent years, with the Covid-19 pandemic affecting its aviation unit in 2020. “The company will need to consult and coordinate with its employees,” said Ran Duchin, a professor of finance at the Carroll School of Management at Boston College.

GE will also need to establish three separate management teams, the board, the finance function and the Treasury Department, that address the needs of stand-alone public companies, said Greg Smalley, a senior analyst at Columbia Threadneedle Investments, an investment firm. Ms Diebeck Happy is “basically dividing her finance work into three teams,” Mr Smalley said.

GE said it expects about $2 billion in one-time costs, including legal, audit, information-technology and restructuring expenses, as well as about $500 million in tax costs. The company does not anticipate a permanent increase in operating costs as part of the divestiture, Ms Diebeck Happe said on Tuesday.

Nina Trentmann at Nina [email protected]

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