How GE Ruined a $30 Billion Deal With a Stock Split

The company will use the $30 billion in proceeds from the deal to cut down on debt, with a planned 1-8 reverse stock split in the works.

Credit | GE

Originally rumored in a Wall Street Journal article, and now confirmed, GE is moving along with AerCap to merge the company’s GECAS financing division with AerCap, in a massive $30 billion deal. GE has claimed that this massive merger is to help the company “focus on its industrial core of Power, Renewable Energy, Aviation, and Healthcare.”

Let me preface by saying that this deal wasn’t unexpected, and quite frankly, is just yet another divestiture for the company. They’ve had quite a few major removals from the company, including:

  • an $11 billion GE Transportation sale
  • a $5.6 billion appliances sale
  • the $13.75 billion sale of NBCUniversal
  • the $26.5 billion sale of GE Capital
  • a $21.4 billion GE BioPharma sale
  • the $11.6 billion sale of GE Plastics
  • the $3 billion sale of Baker Hughes (after buying it for $35 billion).

They’ve had a lot going on. Plus, the list above is only divestitures, including Baker Hughes, so imagine how long it would keep going if I added every little thing that GE owns. It’s a lot. That’s why this deal isn’t necessarily that mind-blowing.

Selling a division, without really selling a division

I think GE’s doing a good job with this deal. They get a lot in return for getting rid of GECAS. In total, the company is estimated to receive upwards of $30 billion in “considerations,” also known as lawyer speak for their end of the trade.

GE’s estimated to receive $24 billion in cash immediately, a 46% ownership stake in AerCap x GECAS, and $1 billion in AerCap notes/cash. For reference, AerCap currently trades on the stock market with a value of $6.84 billion on revenue of $4.94 billion. If you took GE’s 46% of AerCap alone, that’s currently worth $3 billion, putting their immediate value at over $30 billion.

The company’s managed to get a great deal for their floundering GECAS division, while also managing to retain 46% ownership of not only GECAS, but also in AerCap, essentially giving them partial ownership over another company, just by selling one of their subsidiaries.

Throw in the fact that GE is estimating over $30 billion in debt reduction with the proceeds, and it looks like an amazing deal.

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One big problem

As the title above states, there’s just one little massive problem with this whole thing: a 1-8 reverse stock split. This was a terrible idea. It just. Why?

GE stock hit a low of ~$5 last year during the massive pandemic-based market crash. Slap a 1-8 reverse stock split (reduces number of shares to increase price), and bam, the stock’s $40 dollars. That’s a little big of a jump, but it’s high enough that certain funds and banks can now invest, and everything’s good.

That philosophy doesn’t work when your stock currently sits at $14. Slap a 1-8 reverse stock split on it, and then you have a $112 price tag. That’s a lot. Especially when you take into account that many investors aren’t invested in GE for its outstanding business fundamentals (that’s because they don’t have any :), but because the price was under $10. Many think 11 shares of $10 is better than 1 share of $112.

Suddenly, you have to use a whopping $112 to buy a single share of GE, around twice what the stock was worth in the early 2000s. After the split, then GE’s high would be around ~$500 per share. Seriously, it doesn’t make sense.

Companies usually use reverse stock splits in order to reach a price target to stay listed on an exchange or to be investible by private investors. GE has no excuse. $14 is above any necessary number to be invested in. There’s no reason why they should do this.

Except for “beCause wE want3d less pUbl1c shAr3s”. No. Have a nice day, and check back into Statural to see if they do this stupidity soon 🙂

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