GE to Sell Part of Digital Business
GE to Sell Part of Digital Business
General Electric
Co.
GE -1.93%
said it reached a deal to sell part of its GE Digital business and plans to move the rest into a newly created company, as the conglomerate narrows its focus and scales back its software ambitions.
Separately Thursday, one of the company’s biggest Wall Street skeptics,
JP Morgan
analyst Steve Tusa, removed his “sell” rating on GE, saying its business is still challenged but the risks are better understood.
GE has struggled with losses in its core power business and other problems that have forced the Boston-based company to slash its dividend and break itself apart.
GE shares, which have lost more than half of their value this year, jumped 10% in early trading.
Private-equity firm Silver Lake, which is known for its investments in technology and media companies, agreed to buy a majority stake in ServiceMax, a GE Digital unit whose software helps with inventory management and scheduling service technicians, the companies said Thursday. Terms weren’t disclosed.
GE will retain a 10% stake in the business, which it acquired for $915 million two years ago.
GE said it would form a new company focused on industrial Internet of Things software that will be wholly owned by GE but run as an independent business. The company will start with $1.2 billion in annual software sales. A GE representative said there are currently no plans to pursue an initial public offering for the business.
GE Digital Chief Executive Bill Ruh said he will leave GE as part of the changes. A search is under way for a chief executive of the newly formed company.
The Wall Street Journal reported in July that GE had hired an investment bank to find a buyer for key parts of GE Digital, a once highly touted software unit based in San Ramon, Calif.,
Shares of GE, long seen as a haven for investors and a symbol of American corporate might, have tumbled this year, falling below $7 this week for the first time since the 2008 financial crisis.
JP Morgan’s Mr. Tusa put a sell rating on the stock back when no major bank had such a negative view of the conglomerate. The analyst said the risk at GE is “better understood and around which the debate is more balanced, as opposed to being overlooked by most Bulls in the past.”
Mr. Tusa’s price target remains at $6 and he warned the company may still need to sell new shares to raise cash, which would dilute current investors.
GE Digital was key to the strategic vision of former CEO Jeff Immelt, who left the company last year. The company built a software platform called Predix that aimed to help customers such as utilities and airlines gather and analyze data to better manage their equipment.
GE Digital was established as a stand-alone unit in 2015 to distinguish it from the company’s industrial divisions. Mr. Immelt put Mr. Ruh, a former
Cisco Systems
Inc.
executive, in charge and said his goal was to make GE a top-10 software company by 2020.
In 2016, GE Digital acquired several companies. It paid $495 million for Meridium, a Roanoke, Va., company whose software predicts when machinery might fail, and $915 million for ServiceMax, which is based in Pleasanton, Calif.
But GE Digital competes in an increasingly crowded marketplace of companies offering digital tools to control major industrial operations. Other competitors in the field include cloud-software providers such as
Microsoft
Corp.
, business-software makers like
International Business Machines
Corp.
and startups such as C3 IoT and Uptake Technologies Inc.
GE has scaled backed the mission for GE Digital since Mr. Immelt left. The company has cut jobs in the division and said it planned to focus on software for its existing customers and core businesses, rather than catering to other industries.
—Dana Cimilluca contributed to this article.
Write to Kimberly Chin at kimberly.chin@wsj.com and Thomas Gryta at thomas.gryta@wsj.com
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