General Electric has completed the $3.25bn sale of its distributed power business and announced a deal to sell its lighting systems company Current, raising badly needed cash and underlining questions about the group’s conglomerate structure.
The distributed power business, which makes gas engines for local electricity generation, has been established as a standalone company called Innio, after being bought by private equity group Advent International.
The lighting company Current is being bought by American Industrial Partners, another private equity group, for an undisclosed price.
The two deals are part of a programme to sell businesses worth $20bn set out by GE’s previous chief executive John Flannery, who was ousted by the board at the end of September. Both are self-contained businesses that do not have strong links to the rest of the group.
Carlos Lange, who had been running the distributed power operations while they were part of GE and is now chief executive of Innio, said he did not expect them to suffer from no longer being part of a larger group.
“There were initiatives and efforts to integrate with other parts of the company, but by and large we have operated as a standalone company,” he said.
“When John Flannery decided to make $20bn of divestments across its portfolio, this was a pretty good business to carve out fairly quickly.”
Innio has two principal product lines: Jenbacher for small-scale power generation with an output of up to 10 megawatts, and Waukesha for gas compression, used in the oil and gas industry. Both were brought into GE by Jeff Immelt, chief executive in 2001-17, with deals for Jenbacher in 2002 and Dresser, which owned Waukesha, in 2010.
Jenbacher engines compete against other small-scale generation from companies including Rolls-Royce, Caterpillar and Wartsila, and are used in combined heat and power systems, to back up variable wind and solar energy, or in areas where grid supplies are unreliable.
The business has been thriving, reporting double-digit sales growth for the past three years, and although it is slowing now Mr Lange still expects “mid to high single-digit” growth in the coming year.
GE’s core business making large gas turbines for power generation has been hit hard by the rise of renewable energy, but Mr Lange argued that Innio was well positioned to benefit from the pressure to cut greenhouse gas emissions. Its largest combined heat and power project, in Kiel in northern Germany, is expected to cut emissions by 70 per cent compared with the coal plant it is replacing.
In a sign of how the business has already been relatively distinct from the rest of GE, it does not use the group’s Predix software, intended to be a common platform for managing assets from jet engines to power plants. Innio instead has its own digital system for monitoring and analysing its engines.
The sale of Current also marks a reversal from one of Mr Immelt’s initiatives. The business was formed in 2015 to supply commercial lighting systems using LEDs and sometimes other products including solar panels or batteries to provide advanced services.
It was presented as the future of GE’s lighting business when the group put its traditional lightbulb operations up for sale last year, but Mr Flannery decided it had no place in his plans. Current does use Predix software, but expects to be able to continue that as an independent company.
Several other deals have been done under Mr Flannery’s disposal programme, including ABB’s $2.6bn acquisition of the industrial solutions operations which make electrical equipment, and the $1bn sale of a healthcare software business to Veritas Capital.
Both of those transactions closed in July. GE has also agreed to merge its locomotive and mining equipment division with Wabtec, giving it $2.9bn in cash and a stake in the new company, and that deal is expected to be completed early next year.
Larry Culp, who joined GE as an independent director in April and succeeded Mr Flannery as chief executive last month, is committed to an even more radical simplification, shedding GE’s oilfield services and healthcare operations to focus on just two sectors: aviation and the power industry, including renewables.
Scott Davis, an analyst at Melius Research, called for GE to “finish its break-up AT&T style and sell/spin pretty much everything”. He argued in a note this week that the shareholder base for aviation would probably be very different from the investors who wanted to own the power division, and there was “little logic in keeping those businesses together”.
He wrote: “Larry [Culp] will fix GE or sell every piece to someone else who can fix it.”
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