Divests TPS assets
General Electric (GE) gained ~1.8% yesterday after the company showed its intent to improve its liquidity position. Late Wednesday, the industrial conglomerate revealed that MUFG Union Bank, a subsidiary of MUFG Americas Holdings Corporation (or MUAH), has agreed to buy its supply-chain finance unit, TPS (Trade Payable Services).
Although the companies haven’t disclosed the financial terms of the deal, the transaction will bring in cash flows to GE that would help it reduce debt and strengthen its balance sheet. At the end of the third quarter of 2018, the company had long-term debt of over $115 billion. Also, the industrial conglomerate reported negative cash flows in all three quarters of 2018.
Notably, MUAH operates as a US intermediate holding company of Mitsubishi UFJ Financial Group (MUFG). Operating across more than 50 countries with a global network of over 1,800 locations, MUFG is a globally known financial institution.
The recent transaction is in line with GE’s ongoing business restructuring and realignment plan. GE has been grappling with a severe liquidity problem for the last few years. To strengthen its liquidity position, the company announced a series of restructuring plans in June.
The company’s restructuring and business realignment plan mainly involves the divestment and spin-off of certain assets to focus on three primary sectors: power, renewable energy, and aviation. Last November, GE sold its Current business unit, offloaded $4 billion worth of its stake in Baker Hughes (BHGE), and sold $1.4 billion worth of its healthcare equipment finance portfolio. In the next month, the company filed for an IPO for its healthcare unit.
Although the restructuring initiatives are at a very nascent stage, the pace at which CEO Larry Culp has been implementing them has helped the stock gain investor and analyst confidence in the past month. Major research firms including Vertical Research and JPMorgan Chase (JPM) upgraded their ratings on the stock in December. So far in 2019, the stock has gained ~21%.
In 2018, GE stock was the worst performer in the industrial sector (XLI) due to concerns about its severe liquidity crisis, increasing losses, and negative cash flows. The stock lost 56.6% of its value last year.