General Electric Co jumped as a potential megadeal signalled to investors that the ailing manufacturer has another tool to climb out of its deep hole.
Apollo Global Management LLC is working to line up financing to buy GE’s jet-leasing unit, which could be valued at as much as $40 billion, Bloomberg reported after the close of trading on January 4. A deal isn’t imminent, and GE hasn’t even committed to sell the operation, but a number of potential buyers are now angling for GE Capital Aviation Services, the crown jewel of GE’s finance operations.
The interest suggested that new Chief Executive Officer Larry Culp could make sweeping changes to resuscitate the Boston-based company, which has wiped out more than $200 billion of investor wealth in the past two years. The executive took the helm in October following the surprise ouster of John Flannery, who failed to stem a stock collapse during his 14 months as CEO.
A deal would raise considerable capital for the cash-strapped company and accelerate the dismantling of GE Capital, the financing arm that once accounted for half of the parent company’s profit. GE also is taking steps to spin off its healthcare unit, Bloomberg has reported, to narrow its focus on building jet engines and power equipment.
Culp “is really trying to move decisively to make sure that this risk reduction and resolution phase is going to hit big and loud,” said Nicholas Heymann, an analyst at William Blair & Co. If the new boss can pull off a big asset sale, “it is likely to lead to a light-switch change of the market’s perception of GE’s embedded risk, or lack thereof.”
While Culp has yet to lay out a comprehensive turnaround plan, the initial steps have buoyed the stock. As of Friday’s close, GE had gained more than 20 percent since December 12, the recent nadir. It still has a long way to go for a full recovery, after falling 57 percent last year and 45 percent in 2017.
The shares climbed 4.6 percent to $8.61 in New York.
A deal for the leasing unit, known as Gecas, could generate gross proceeds of $8 billion to $10 billion, according to Barclays analyst Julian Mitchell. While the sale would decrease earnings, it “should help reduce the existential question marks facing the company,” he said in a note to clients.
Still, there is uncertainty about the value of the business as leasing companies industrywide have suffered from declining multiples, Steve Tusa, an analyst at JPMorgan Chase & Co, said in a note. While he expects GE to take action soon to provide investors with something “tangible, perhaps shrinking the balance sheet,” a Gecas sale “is unlikely to be the silver bullet” to fix leverage issues in GE’s remaining finance operations.
Gecas sits alongside Dublin-based AerCap Holdings NV as the world’s top plane lessors. GE has a fleet of almost 2,000 aircraft valued at about $40 billion, according to the company’s website. It’s also a significant player in the helicopter market after the $1.8 billion acquisition of Milestone Aviation Group Ltd. in 2015.
GE declined to comment on the potential of a sale of Gecas. Bloomberg reported in September that Singapore’s sovereign wealth fund had inquired about the business during a meeting with GE executives.