General Electric confirmed a $30 billion deal to sell its aircraft-leasing business and backed a reverse stock split during an investor day Wednesday. GE stock fell.
The sale of GE Capital Aviation Services (GECAS) to Ireland's AerCap Holdings means the industrial giant will shed the biggest remaining slice of GE Capital, which will cease to be a separate stand-alone business.
The move also speeds up GE's turnaround, allowing it to slash its debt by $30 billion. It's also one of the biggest deals in GE's multiyear restructuring, following sales of the biotech unit, light bulb business, and a majority stake in its oil field services segment.
Under the terms of the GECAS sale, GE will receive $24 billion in cash and 111.5 million shares, or the equivalent of a 46% stake in the combined entity. GE will also get another $1 billion from when the transaction closes in about nine to 12 months.
GE said it plans to sell some of its stake in the merged jet-leasing behemoth after the lock-up period ends, allowing it to reduce debt further. Once the GECAS deal closes, GE will have slashed debt by $70 billion since 2018.
But while GE Capital will wind down, the company will still retain its legacy insurance business and liabilities which previously have plagued the bottom line.
Separately, GE's board also recommended a 1-for-8 reverse stock split and a "corresponding proportionate reduction in the number of authorized shares." The reverse split will shrink the amount of outstanding GE stock to about 1.1 billion shares from 8.8 billion.
Those actions are meant to adjust the number of outstanding shares in line to be more in line with companies that have comparable market caps, GE said.
Management will seek shareholder approval for the stock split at GE's annual meeting on May 4.
IBD Live: A New Tool For Daily Stock Market Analysis
GE Stock
Shares fell 5.4% to 13.25 on the stock market today. GE stock is still extended off a 12.01 three-weeks-tight entry and an alternative entry around 11 off support at the 10-week line, according to MarketSmith chart analysis. The relative strength line for GE stock has pulled back from a recent high.
Shares of jet-engine rival Raytheon Technologies rose 2.3% Wednesday, and aerospace supplier Honeywell added 2.55%. AerCap fell 4.7% but still up 5.1% for the week.
Wall Street had earlier applauded the GECAS deal, which was reported by the Wall Street Journal on Sunday, with Bank of America lifting its price target on GE stock to 15 from 14 on Monday.
On Wednesday, GE also backed its full-year guidance, though it will take a $3 billion non-cash charge in Q4 related to the GECAS sale. In January, GE predicted adjusted 2021 EPS of 15-25 cents, which is largely below the current consensus for 24 cents a share, and industrial free cash flow of $2.5 billion-$4.5 billion.
GE said Wednesday that its backing of that guidance assumes the engine-making aviation unit continues to recover this year.
Meanwhile, key customer Boeing has resumed deliveries of its 737 Max and is taking orders again after regulators cleared to plane to carry passengers.
Find Aparna Narayanan on Twitter at @IBD_Aparna.
