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GE Announces One Of Largest Buybacks In History, Will Repuchase $50 Bn In Shares After Selling Most Of GE Capital

Tyler Durden's picture




 

As we showed previously, the main reason stocks soared in February after the worst January in years, is that companies announced a record $100 billion in stock buybacks in the month even as both earnings and the US economy continued to sharply deteriorate .

Moments ago, General Electric showed why April is much more likley to be a rerun of February than January or March when it announceed that it would go ahead and repurchase half of the total record stock buybacks announced in February, or some $50 billion in what may be the largest stock buyback announcement in history!

How will GE fund this massive distribution to its shareholders, of which the most concentrated one will once again be the biggest winners? Simple: by dumping the division that nearly caused its insolvency during the financial crisis, the hedge fund known as GE Capital. As part of the just announced mega transaction, GE announced an agreement to sell the bulk of the assets of GE Capital Real Estate to funds managed by Blackstone. Wells Fargo will acquire a portion of the performing loans at closing.

The Company also has letters of intent with other buyers for an additional $4 billion of commercial real estate assets. In total, these transactions are valued at approximately $26.5 billion.

Following what is essentially a spin off, GE expects that by 2018 more than 90 percent of its earnings will be generated by its industrial businesses, up from 58% in 2014. Or, as someone put it, GE will be far less General and almost entirely Electric.

What is odd is that as the chart below shows, GE shareholders were not lacking in the buyback back department:

But now it has truly taken balance sheet engineering to the next level as the company will no doubt be forced to lever up massively as it loses a main source of cash flow if it wants to preserve its shareholder friendly status. In fact, it wouldn't be surprising if GE suddenly became an acquisition target before it loads up its balance sheet with billions in junk bonds.

From the press release:

GE to Create Simpler, More Valuable Industrial Company by Selling Most GE Capital Assets; Potential to Return More Than $90 Billion to Investors Through 2018 in Dividends, Buyback & Synchrony Exchange

  • High-value industrials to comprise more than 90% of GE earnings by 2018
  • Plans to retain financing “verticals” that relate to GE’s industrial businesses
  • Announces sale of GE Capital Real Estate assets for approximately $26.5 billion
  • Will work with regulators to terminate GE Capital’s SIFI designation
  • GE to take approximately $16 billion after-tax charge in 1Q’15, $12 billion non-cash
  • Industrial businesses remain on track for operating earnings per share of $1.10-$1.20 in 2015, in line with expectations
  • GE expects to get approximately $35 billion in dividends from GE Capital from this plan
  • Board authorizes new buyback program of up to $50 billion

GE today announced that it will create a simpler, more valuable company by reducing the size of its financial businesses through the sale of most GE Capital assets and by focusing on continued investment and growth in its world-class industrial businesses.

GE and its Board of Directors have determined that market conditions are favorable to pursue disposition of most GE Capital assets over the next 24 months except the financing “verticals” that relate to GE’s industrial businesses. Under the plan, the GE Capital businesses that will remain with GE will account for about $90 billion in ending net investments (ENI) excluding liquidity – about $40 billion in the U.S. – with expected returns in excess of their cost of capital.

“This is a major step in our strategy to focus GE around its competitive advantages,” GE Chairman and CEO Jeff Immelt said. “GE today is a premier industrial and technology company with businesses in essential infrastructure industries. These businesses are leaders in technology, the Industrial Internet and advanced manufacturing. They are well-positioned in growth markets and are delivering superior customer outcomes, while achieving higher margins. They will be paired with a smaller GE Capital, whose businesses are aligned with GE’s industrial growth.”

“The successful IPO of GE’s retail finance business, Synchrony Financial, and other recent business exits have demonstrated that our financial services assets can be more valuable to others,” said GE Capital Chairman and CEO Keith Sherin. “GE Capital’s businesses are excellent, and this is a great market for selling financial assets. Our people are world-class. We are confident these businesses will thrive elsewhere.”

As part of the execution of this new plan, GE announced today an agreement to sell the bulk of the assets of GE Capital Real Estate to funds managed by Blackstone. Wells Fargo will acquire a portion of the performing loans at closing. The Company also has letters of intent with other buyers for an additional $4 billion of commercial real estate assets. In total, these transactions are valued at approximately $26.5 billion.

Under the plan, GE expects that by 2018 more than 90 percent of its earnings will be generated by its high-return industrial businesses, up from 58% in 2014.

In 2015, GE’s industrial businesses remain on track for operating earnings per share of $1.10-$1.20, up solid double digits, in line with expectations. “With sustainable growth, investments in competitive advantage, productivity programs and the addition of Alstom, we expect this performance to continue in the future,” Immelt said. “We will focus our efforts on these businesses.”

Immelt added, “We are completing another definitive and important move to reshape GE for the future. GE is a fast-growth, high-tech industrial company, built on the capabilities of the GE Store. The team is executing a detailed plan to boost margins and returns. We are allocating capital to grow the Company and benefit investors. Our best days are ahead.”

Creating Value in GE Capital

GE Capital has been an important part of the history of GE. However, the business model for large, wholesale-funded financial companies has changed, making it increasingly difficult to generate acceptable returns going forward.

GE will retain its “vertical” financing businesses – GE Capital Aviation Services, Energy Financial Services and Healthcare Equipment Finance – that directly relate to its core industrial businesses. The assets targeted for disposition, in addition to Real Estate, are most of the Commercial Lending and Leasing segment, and all Consumer platforms, including all U.S. and international banking assets.

These businesses represent roughly $200 billion in ENI. Since 2008, GE has reduced GE Capital’s ENI from $538 billion to $363 billion at the end of 2014. The separation of Synchrony Financial, which is targeted by the end of 2015, and other recently announced dispositions, account for another $75 billion in ENI reduction (the Synchrony separation is subject to regulatory approval).

There is potential to return more than $90 billion to investors in dividends, buyback and the Synchrony exchange through 2018. The exits of the targeted GE Capital businesses should release approximately $35 billion in dividends to GE (subject to regulatory approval), which, under GE’s base plan, are expected to be allocated to buyback; this is in addition to the impact of the Synchrony exchange and ongoing dividends. The GE Board has authorized a new repurchase program of up to $50 billion in common stock, excluding the Synchrony exchange. GE expects to reduce its share count to 8-8.5 billion by 2018. These actions would still allow room for opportunistic “bolt on” acquisitions in GE’s core markets. GE also said it plans to maintain its dividend at the current level in 2016 and grow it thereafter.

Working with Regulators

GE has discussed this plan, aspects of which are subject to regulatory review and approval, with its regulators and staff of the Financial Stability Oversight Council (FSOC). GE will work closely with these bodies to take the actions necessary to de-designate GE Capital as a Systemically Important Financial Institution (SIFI). “We have a constructive relationship with our regulators and will continue to work with them as we go through this process,” Immelt said.

Financial Details

Approximately $16 billion of after-tax charges are expected to be recorded in the first quarter of 2015 in connection with the plan – of which about $12 billion are non-cash. The charges include taxes on repatriated earnings, asset impairments due to shortened hold periods, and charges on businesses held for sale, including goodwill allocation.

GE expects that the earnings impact of the GE Capital exits will be offset by the buyback over the exit period.

GE will execute this strategy using an efficient approach for exiting non-vertical assets that works for GE and for GE Capital Corporation (GECC) debtholders and GE shareholders. An element of this approach involves a merger of GECC into GE and the creation of a new intermediate holding company for GECC businesses.

GE has amended its income maintenance agreement to guarantee all tradable senior and subordinated debt securities and all commercial paper issued or guaranteed by GECC. The guarantee will replace the current income maintenance covenant. GE will maintain substantial liquidity and capital through the transition and does not expect to issue incremental GE Capital long-term debt for at least five years. Commercial paper will be further reduced to approximately $5 billion by the end of 2015.

“We are proud of the GE Capital team, the outstanding businesses that GE Capital employees have built, and how they have delivered for customers and shareholders over many years,” said Immelt. “The GE Capital team has displayed great resiliency, facing tough cycles and driving strong results.”

J.P. Morgan and Centerview Partners have provided financial advice to GE, and Bank of America provided advisory services. Weil, Gotshal & Manges, Davis Polk, and Sullivan & Cromwell provided legal advice. For the Real Estate deal, Bank of America and Kimberlite Advisors provided financial advice and Hogan Lovells provided legal advice.

 

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Fri, 04/10/2015 - 07:19 | 5977864 Max Damage
Max Damage's picture

And the workers will be told there is no cash for a pay rise this year

Fri, 04/10/2015 - 07:22 | 5977869 LongMarch
LongMarch's picture

Who needs cash when you have stocks? Go baby Go!

Fri, 04/10/2015 - 07:29 | 5977878 Max Damage
Max Damage's picture

SO GE are investing $50 billion into paper rather than capital projects.. No wonder main street is fucked and Wall street is laughing in their faces

Fri, 04/10/2015 - 07:42 | 5977896 GetZeeGold
GetZeeGold's picture

 

 

Missing QE cash?

 

Found it!

Fri, 04/10/2015 - 08:53 | 5978057 Its_the_economy...
Its_the_economy_stupid's picture

Corporate Darwinism. These companies are eating themselves.

Fri, 04/10/2015 - 09:18 | 5978152 PartysOver
PartysOver's picture

For stocks, it is not about fundamentals, it is all about supply and demand.  Unless of course you believe that things like labor and stocks are immune from such economic laws.

Fri, 04/10/2015 - 09:43 | 5978297 Almost Solvent
Almost Solvent's picture

Wells Fargo is the biggest shithole of the TBTF banks - if they are involved then the assets are shit and will be hidden in the toxic graveyard that is Wells Fargo. 

 

Fri, 04/10/2015 - 10:06 | 5978396 MisterMousePotato
MisterMousePotato's picture

When I watched the movie, Goodfellas, I was left with the impression that a 'bust out' was frowned upon by society (and the authorities). What a difference a decade makes.

Fri, 04/10/2015 - 07:30 | 5977880 max2205
max2205's picture

Did GE just ring the top of the market Bell.

Fri, 04/10/2015 - 07:58 | 5977916 schadenfreude
schadenfreude's picture

Pretty good point in time to leave the casino.

Fri, 04/10/2015 - 09:37 | 5978263 Van Halen
Van Halen's picture

Who needs stocks when you have hope and change? Yes we can!

Fri, 04/10/2015 - 08:24 | 5977971 lester1
lester1's picture

THIS CHEAP MONEY FROM THE FED HAS GOT TO STOP. THESE BUYBACKS ARE GETTING RIDICULOUS.

Fri, 04/10/2015 - 09:15 | 5978136 Ward cleaver
Ward cleaver's picture

What's wrong with u Lester, don't u know that Imelt and his ass-kissing posse's options will be worth more. So what if they have to fire a bunch of people and eliminate R&D investments in order for Jeff to buy an additional vacation home. Don't worry, Steve Liesman will explain

Fri, 04/10/2015 - 07:24 | 5977872 p00k1e
p00k1e's picture

This is what they spend the insurance loot on, huh.  

Fri, 04/10/2015 - 07:29 | 5977879 SillySalesmanQu...
SillySalesmanQuestion's picture

I wonder how under-funded GE's pension plan is? Or, how much debt is on the balance sheet? Oh, I forgot, debt is almost free money...

Fri, 04/10/2015 - 07:35 | 5977888 p00k1e
p00k1e's picture

I have a job, GE is a nice corporate citizen.  I say we bail them out.      

Frankly, we need a new bailout tax. 

Fri, 04/10/2015 - 07:31 | 5977881 disabledvet
disabledvet's picture

And somewhere on the earth

 

IS A FUCKING NECROPOLIS FOR THIS PIECE OF SHIT COMPANY TOO.

 

FUCK YOU JACK WELCH YOU WORTHLESS FUCKING PIECE OF SHIT TOO.

Fri, 04/10/2015 - 09:14 | 5978135 Buckaroo Banzai
Buckaroo Banzai's picture

Jack Welch would never admit it, but it was Gary Wendt that built GE as we know it today. This massive $50 billion stock buyback is his final legacy.

Fri, 04/10/2015 - 07:32 | 5977884 TheFreeLance
TheFreeLance's picture

Next step, turn Beth Comstock loose to buy up boutique content platforms that look sexy but are not. And to further look like you have a plan and ward off suitors, go on the offense and move deeper into the logistics/supply chain space. GE may yet go down, but not without a fight.

Fri, 04/10/2015 - 07:36 | 5977889 Tic tock
Tic tock's picture

Why would anyone buy GECapital ?

Fri, 04/10/2015 - 07:53 | 5977907 madbraz
madbraz's picture

I would guess there are massive losses and this is a shotgun marriage.

 

Hard to spin this as bullish, hence the fantasyland buyback announcement, which will never come true.

Fri, 04/10/2015 - 08:13 | 5977937 Niall Of The Ni...
Niall Of The Nine Hostages's picture

With his own money? Nobody. The deal is being financed with Fed-confetti from DC. As usual.

Fri, 04/10/2015 - 07:37 | 5977890 NoDebt
NoDebt's picture

Go look at a 15 year chart on GE's share pirce.  It ain't pretty.  These guys destroy capital like they're an airline or something.  Ditching GE Cap is probably a good move.  Spending it all on share buy-backs speak volumes about where they think their new industrials-only business model is headed.

Does GE make toilets?  They should.

Fri, 04/10/2015 - 07:57 | 5977915 SDRII
SDRII's picture

This makes up for the well timed oil services deals

Fri, 04/10/2015 - 07:41 | 5977894 DavidC
DavidC's picture

Every time this 'market' looks like it might turn another rabbit is pulled out of the hat to keep it going a bit longer - I wonder how many rabbits are left, given I thought they'd run out of them a long time ago.

DavidC

Fri, 04/10/2015 - 08:03 | 5977925 schadenfreude
schadenfreude's picture

Next rabbit is going to be pulled, wehen they recognize, that Q1 GDP is negative and the rate hike is being delayed to 2099

Fri, 04/10/2015 - 07:50 | 5977901 yogibear
yogibear's picture

And GE adds to the mega stock market bubble.

Growing ever larger. The larger the bubble the more pain it will be once it explodes.

The Federal Reserve's bubble-god himself said:

“The market can stay irrational longer than you can stay solvent.”

- John Maynard Keynes

Fri, 04/10/2015 - 07:47 | 5977902 papaswamp
papaswamp's picture

GE=QE

Fri, 04/10/2015 - 07:51 | 5977905 Pitiful
Pitiful's picture

Huh, it's a good thing I read the "Frontrunning" article they post here every morning around 5:30. Because ZH fucking said this was going to happen. So you know what I did? I bought a ton of GE on Monday afternoon. And you know what. ZH was right, AGAIN. Thanks for the pointers Durden...

You can use this website constructively you know. And not just to rant about random bullshit.

Fri, 04/10/2015 - 07:57 | 5977914 SillySalesmanQu...
SillySalesmanQuestion's picture

We don't question the motives of this site, but we rant about the motives of our masters...

Fri, 04/10/2015 - 08:03 | 5977926 Pitiful
Pitiful's picture

Well so do I. They are piss poor at just about everything they do but I will still play their hand when it serves my well being.

Fri, 04/10/2015 - 17:00 | 5980339 Gambit
Gambit's picture

This website is not a fucking wealth advisory website, as with everything else you do your own due diligence when investing.  For me the website is a way to look into things that I would otherwise be unaware of, or to question, or via the comments learn something new.  In other words it is a community. And yes some of the articles are not worth reading (Phoenix Capital should just get lost), but that's a small price to pay for good content, and I am ok with it.  

Fri, 04/10/2015 - 07:52 | 5977906 yogibear
yogibear's picture

Yellen, Dudley and Evans will be ecstatic to announce QE4 later this year.

It's QE4, QE5........QE20 or when there is a currency crisis.

 

Fri, 04/10/2015 - 08:18 | 5977941 Quinvarius
Quinvarius's picture

The banks can survive anything.  They have a free money pipeline now.  It doesn't really matter what else happens to the economy.  We are just waiting for the next wave of their greedy plans to implode so they can print a few more pies for themselves.  Maybe they will call it QE.  Maybe we will never hear about it because the banks will just borrow at -50% interest from the Fed.

Fri, 04/10/2015 - 08:58 | 5978072 LawsofPhysics
LawsofPhysics's picture

Yes, for now...

 

"Full faith and credit"

Fri, 04/10/2015 - 08:33 | 5977990 lester1
lester1's picture

Lets face facts here. The Fed has nationalized the stock market.

 

0% rates are here forever.

 

This is the new normal.

 

BTFD !!

Fri, 04/10/2015 - 07:54 | 5977908 i_call_you_my_base
i_call_you_my_base's picture

This shit is so shortsighted and stupid.

Fri, 04/10/2015 - 07:59 | 5977917 dogismycopilot
dogismycopilot's picture

What does GE know that we don't?

Fri, 04/10/2015 - 08:00 | 5977921 i_call_you_my_base
i_call_you_my_base's picture

That executives have equity-based pay?

Fri, 04/10/2015 - 08:10 | 5977934 Niall Of The Ni...
Niall Of The Nine Hostages's picture

That the class war is very real and they're on the side that's winning.

Fri, 04/10/2015 - 08:11 | 5977935 Quinvarius
Quinvarius's picture

That being a financial entity without daily access to free Fed money is a good way to lose, and it won't get any easier moving forward.

Fri, 04/10/2015 - 08:05 | 5977930 Fun Facts
Fun Facts's picture

See if the fuckers at GE will repurchase their Fukishima reactor that's spewing radiation all over the world.

Fri, 04/10/2015 - 09:02 | 5978087 fascismlover
fascismlover's picture

All sales are final for anything that can kill planets. 

Fri, 04/10/2015 - 08:05 | 5977931 Niall Of The Ni...
Niall Of The Nine Hostages's picture

They're right about one thing. Great market for selling financial assets. Someone got word of the peak, I see.

Fri, 04/10/2015 - 08:11 | 5977936 firewolfsblog
firewolfsblog's picture

seems legit

Fri, 04/10/2015 - 08:28 | 5977980 Quinvarius
Quinvarius's picture

Watch the next 4 minutes of this video on North Korea's economy, and you will understand the US economy.  The parallel court economy is analog the Western bankers in their banking system vs the real economy.  Watch at least 4 minutes.

https://www.youtube.com/watch?v=jEJqEuM5V68&t=11m35s

You will crap yourself when you realize what we have devolved into.

Fri, 04/10/2015 - 08:40 | 5978007 Dapper Dan
Dapper Dan's picture

I am interested in what Blackstone’s angle is.

Spanish Eviction Protesters Target U.S. Private Equity Giant Blackstone

Following Comments Unfollow Comments

By Vanessa Ørnskov

One of the world’s largest private equity investors stands accused of seeking to profit from Spain’s lowest income tenants. The Blackstone Group is the latest target for anti-eviction campaigners collectively known as PAH (Plataforma de Afectados por la Hipoteca) over its Spanish real estate investments.

http://www.forbes.com/sites/debtwire/2015/04/09/spanish-eviction-protesters-blackstone/

Fri, 04/10/2015 - 08:57 | 5978070 LawsofPhysics
LawsofPhysics's picture

Just more proof that the public equity market is dead. It does not provide effective oversight mechanism for equity owners. It does not align interests between owners and agents. In fact, it guarantees the company will be run for the benefit of management, to the detriment of owners, employees, clients and vendors. And then we act surprised when it is.

 

Management/owners are cashing out and moving more production overseas.  "Winning"...

Fri, 04/10/2015 - 09:09 | 5978118 ejmoosa
ejmoosa's picture

What's the message here that every company seems to be saying, and yet the media is not catching it?

Under these economic conditions, it's not worth growing the business any larger.

 

Someone better wake up.

Fri, 04/10/2015 - 11:28 | 5978807 Mayer Amschel R...
Mayer Amschel Rothschild's picture

In the Fortune 150 company I work at there's little reinvestment of the record profits; all to stock buybacks and management stock performance bonuses.  The looting by blood sucking activist investors and complicit management will only accelerate until the wheels come off of operations.  No money to fix machinery.  The corporate culture which never was nice to begin with has become caustic.  So many squeezed out for re-org or "retired".  Seemingly annual re-organizations makes for constant flux & fear.  Ass-kissing more prevalent than ever.  Financial engineers from the outside brought into management.  Empty buzz-word talking MBA robots now dominate.  Glass ceiling for those who grew within the company. Everyday more & more a soulless shit-hole. 

Fri, 04/10/2015 - 18:38 | 5980661 Ward cleaver
Ward cleaver's picture

Mayer, having worked for a large corporate firm and being squeezed out " Mike your territory for sales is Alaska and Fiji Islands", your post is the best I've read to capture today's environment. Well done and glad I'm 60 and don't have to sell my soul to earn a living. Goodbye USA

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