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Inside General Electric’s Healthcare Business Unit Spin-Off Plan

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Separating the Healthcare segment

As part of its major restructuring plan, General Electric (GE) intends to spin off its Healthcare segment and turn it into a standalone entity. The company has planned the spin-off in a manner that maximizes shareholder wealth.

The company intends to sell a 20% interest in its Healthcare segment and distribute 80% of the stake to shareholders tax-free. GE expects to complete the spin-off by the end of 2019. Kieran Murphy, current president and CEO of the Healthcare segment, will continue to head the business following the spin-off. The spin-off move is expected to complement GE’s ambition of focusing on core businesses and drive its long-term sustainable growth and margins.

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GE’s Healthcare segment, which offers medical imaging and information technologies, biopharmaceutical manufacturing technologies, and patient monitoring systems, is one of the company’s better-performing units and is the fourth-largest contributor to its total revenue. In 2017, the segment’s operating profit rose 9% on 4.5% higher revenue.

Healthcare business

In the third quarter, GE’s Healthcare segment accounted for 17.2% of its total industrial (IYJ) revenue compared to 16.5% in the previous year’s quarter. Its third-quarter Healthcare revenue was flat YoY (year-over-year). However, the segment’s sales rose 3% YoY on an organic basis, mainly driven by 3% growth in its Healthcare Systems business and 5% growth in its Life Sciences business.

In the third quarter, the segment’s orders rose 3% organically, with Healthcare Systems orders up 2% and Life Sciences orders up 6%. By region, organic orders in Europe rose 4% on new launches across healthcare systems. In the United States, orders fell 3% mainly due to the nonrepeating of government orders for healthcare systems. Organic orders in emerging markets surged 9%, with China’s orders increasing 13%.

The segment’s third-quarter operating profit rose 2% YoY to $861 million on a reported basis, while its margin expanded 30 basis points to 18.3%. Organically, its profit rose 10%, and its margin expanded 120 basis points, mainly driven by higher volumes and better cost management, partially offset by reduced pricing.

GE’s Healthcare (IHI) segment competes with the likes of Boston Scientific (BSX), Baxter International (BAX), and Abbott Laboratories (ABT). Boston, Baxter, and Abbott registered YoY rises of 12.9%, 25%, and 13.6%, respectively, in their third-quarter EPS.

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