GE stock plunged
General Electric (GE) fell ~4.4% yesterday after market experts questioned how much the company could make from selling its airline-leasing unit, or whether a sale would materialize at all.
GE stock rallied after Bloomberg on January 4 reported that private equity firm Apollo Global Management is considering an offer to bid for General Electric’s jet-leasing operations, GECAS (GE Capital Aviation Services). GECAS is a business unit of GE’s capital segment under which it provides planes to airlines on long-term leases.
The GECAS asset sale speculation comes at a time when GE CEO Larry Culp is speeding up the restructuring process. Under the initiative, the company has zeroed in on the divestment and spin-off of certain assets to lower its debt, enhance liquidity, and restore profits.
Bloomberg reported that the unit, which has a fleet of over 1,900 jets, is valued at $40 billion. Therefore, at that time, it was believed that if the deal gets sealed, it could help GE drastically lower its mammoth $115 billion debt load.
Market experts suspect deal will materialize
The market was pleased with GE-Apollo talk rumors initially. However, for the last few days, market experts have become increasingly doubtful that an agreement between GE and Apollo could happen, as nothing has come out of those talks yet. In a note to clients on January 17, John Inch of Gordon Haskett stated that GECAS assets are overvalued and doubted that the sale could fetch anywhere near its book value of $40 billion.
On Monday, a report from Barron’s echoed the same concern. Later on Tuesday morning, a Wall Street report further raised concern by revealing that at least Air Lease Corporation (AL) is not interested in buying GECAS assets.
The Industrial Select Sector SPDR Fund (XLI) invests 3.4% of its funds in GE stock. XLI also has 15.5% exposure to industrial conglomerates including Honeywell International (HON), 3M (MMM), and United Technologies (UTX). Honeywell, 3M, and United Technologies have weights of 5%, 5.4%, and 4.4%, respectively, in XLI.