General Electric Co.’s shares plummeted on Wednesday after the industrial conglomerate confirmed a $ 30 billion deal with AerCap Holdings NV, while surprisingly proposing a 1 to 8 reverse split.
GE, which hosted a meeting with analysts on Wednesday morning, also provided financial guidance for 2021, in which the range of adjusted earnings was somewhat pessimistic, but the ranges of revenue and free cash flow were in line with expectations.
The GE stock,
The fluctuation fell 6.0% in morning trading, positioning itself on the path to the biggest one-day drop since September 21, 2020, when it fell 7.7%. The drop comes after the stock rose 11.6% in March through Tuesday, including a 3-year high close at $ 14.17 on Monday, while the S&P 500 SPX index,
gained 1.7% over the same time.
The reverse split may surprise investors, as they are generally reserved for companies concerned that their stock price may have dropped or be below the limits that may cause mutual fund investors to reject the shares or cause the exchanges to issue closing notices. Read more about reverse share splits.
In the case of GE, the company said its board was recommending the division of reserves, which will be voted on by shareholders at the annual meeting in May, given the company’s “significant transformation” in recent years.
“The reverse split would decrease the number of shares outstanding for a more typical number of companies with comparable market capitalization,” said GE in a statement.
FactSet, MarketWatch
GE had a market capitalization of $ 122.75 billion at Tuesday’s closing price and had 8.77 billion shares outstanding as of January 31. In comparison, Lowes Companies Inc. LOW,
with a market value of $ 121.34 billion, it has approximately 734 million shares outstanding, while Starbucks Corp. SBUX,
with a market value of US $ 125.44 billion, it has 1.18 billion shares outstanding.
The reverse split proposed by GE would effectively multiply the share price by eight, while reducing the number of outstanding shares to around 1.1 billion. If the shareholders approve the division, the division will take effect at the discretion of GE’s board, at any time prior to the first anniversary of the annual meeting of May 4, 2021.
GE confirms deal with AerCap
GE confirmed on Wednesday an agreement to combine its GE Capital Aviation Services (GECAS) aircraft leasing business with AerCap, in a deal that creates more than $ 30 billion in value for GE shareholders.
The Wall Street Journal reported earlier this week that a deal was close.
Under the terms of the agreement, GE will receive $ 24 billion in cash and 111.5 million common shares, with a market value of around $ 6 billion and representing a 46% shareholding in the combined company.
GE said it plans to use the deal’s resources to further reduce debt, which would bring the total debt reduction since the end of 2018 to more than $ 70 billion.
The deal is part of a multi-year effort by GE to reduce the risk of GE Capital, which is expected to have about $ 21 billion in assets after the deal closes, compared to $ 68 billion in late 2020. close in nine to 12 months. And as soon as the deal is closed, the remaining assets will be part of the consolidated industrial balance.
“Today marks the transformation of GE into a more focused, simpler and stronger industrial company,” said Chief Executive Larry Culp.
“AerCap is the right partner for our exceptional GECAS team,” said Culp. “We are creating an industry-leading aviation lessor with experience, scale and reach to better serve customers worldwide, while GE makes money and a significant stake in the stronger combined company, with the flexibility to monetize according to the aviation industry. recovers. “
GE financial guidance
As part of the analyst’s day, GE provided details on its financial guidance for 2021.
The company expects year-round adjusted earnings per share of 15 to 25 cents, compared with FactSet’s consensus of 25 cents.
For revenue, GE expects growth in the “low-digit” percentage range, while FactSet’s current $ 80.4 billion revenue consensus implies a 1.0% increase.
Free cash flow is expected to be $ 2.5 billion to $ 4.5 billion this year, which involves the FactSet consensus of $ 3.6 billion.
GE said its guidance is based on the premise that the aviation market will begin to recover in the second half of the year. GE assumes growth in the renewable energy market, an accelerated turnaround in the energy sector and sees an “attractive” healthcare market, with sweeps back to pre-COVID levels.
“We are on a positive path in 2021, as momentum develops in our business and we become a more focused, simpler and stronger industrial company,” said CEO Culp. “We are excited to move more on the offensive, investing in innovative technologies to meet the needs of our customers and the world – for more sustainable, reliable and affordable energy; more integrated and personalized health care; and a more intelligent and efficient flight. “
GE’s shares have now risen 16.2% in the last three months and skyrocketed 48.6% in the last 12 months. In comparison, the SPDR Industrial Select Sector XLI exchange-traded fund,
advanced 36.6% last year and the S&P 500 rose 34.9%.