General Electric Company's
) second-quarter 2014 results reflected the company's greater focus
on its industrial operations, as the conglomerate looks to further
stimulate its shift away from the financial business. Management
has decided to initiate a $3 billion initial public offering (IPO)
of Synchrony Financial, its North American consumer finance
The move is a part of the company's long-term strategy to shrink
its financial arm, GE Capital, which it has been striving to do
since the credit markets froze in the financial crisis.
According to a regulatory filing, General Electric plans to raise
about $3 billion from the IPO of its credit card unit. The divested
unit, Synchrony Financial, is looking to be listed following the
July IPO and will trade under the ticker "SYF."
Per the filing, General Electric intends to float 20% of Synchrony
Financial in the IPO. The remaining 80% will be held by the
conglomerate, to be reportedly spun off in a tax-free share
exchange with its shareholders in 2015.
In the SEC filing, the company outlined its intent to offer 125
million shares of Synchrony Financial for $23 to $26 per share. The
company has also granted underwriters the option to buy additional
18.75 million shares for over-allotment.
The company will use the proceeds to repay debt and increase its
The Goldman Sachs Group, Inc.
JPMorgan Chase & Co.
), Citigroup Inc. and Morgan Stanley are acting as managers of the
Synchrony Financial handles store credit cards for major retailers
like Gap, Walmart and JC Penney. Valued at over $3 billion, the IPO
presents itself as the largest by a U.S. company this year so far,
trumping the $2.6 billion offering by
Ally Financial Inc.
) in April.
GE's Repositioning Strategy
General Electric has long been attempting to reduce its reliance on
financial profits, while aligning its portfolio toward core
industrial operations. At its height, the conglomerate's financial
arm GE Capital, accounted for just under half of the revenues. In
the second quarter, GE Capital contributed about 43% of the
General Electric's impressive growth in earnings for second-quarter
2014 was largely driven by the robust performance of its industrial
segment. While the industrial segment recorded 7% year-over-year
revenue growth, GE Capital's total revenues declined 6% year over
year, in sync with the company's strategy. (Read:
General Electric Q2 Operating Earnings in Sync,
The conglomerate now aims to downsize GE Capital such that it
accounts for just 25% of its profits by 2016. Divestiture of
Synchrony Financial is a critical step in the repositioning of its
portfolio toward its industrial roots.
The IPO comes on the heels of General Electric's successful bid to
acquire the energy assets of French conglomerate Alstom for $13.5
billion. Per the deal, the U.S. giant will buy the grids, off-shore
wind and hydro operations, and nuclear and steam businesses of its
French counterpart. (See:
GE Wins Alstom Board Approval; Govt Seeking 20%
The Alstom deal, fraught with political drama and bidding combat,
is General Electric's biggest acquisition to date. Likely to close
in 2015, the acquisition is expected to be accretive to 2016 the
company's earnings by 6-9 cents per share. The deal promises
excellent return potential, supply chain efficiencies and deep
The conglomerate, as it sheds its financial assets on one hand and
strengthens its core industrial operations on the other, looks
poised to spur long-term growth.
General Electric presently holds a Zacks Rank #3 (Hold).
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report
GENL ELECTRIC (GE): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis
GOLDMAN SACHS (GS): Free Stock Analysis Report
ALLY FINANCIAL (ALLY): Free Stock Analysis
To read this article on Zacks.com click here.