Dive Brief:

• GE on Tuesday announced plans to spin off its healthcare operations in early 2023 as a standalone public company with a focus on precision health. In addition, GE's renewable energy, power and digital businesses will be spun off in early 2024 as an independent entity, with the remaining company comprising GE's aviation business.
• Integra LifeSciences CEO Peter Arduini will take the helm of the GE healthcare company as president and CEO, effective Jan. 1, 2022. He replaces Kieran Murphy, who has led the unit since 2017. GE Chairman and CEO Lawrence Culp will serve as non-executive chairman of GE Healthcare when its spinoff is completed and will lead the GE aviation-focused company.
• GE said the decision to separate the businesses comes as the conglomerate has strengthened its financial position and operating performance, enabling it to form three well-capitalized, investment-grade companies. "We are embarking on this exciting journey from a position of strength," Culp said on an investor call. GE's stock rose almost 3% on the news to close Tuesday at $111.29.

Dive Insight:

A spinoff of the healthcare business has been on the table before. In 2018, GE CEO John Flannery announced the healthcare business would become a standalone company, and the remaining enterprise would retain aviation, power and renewable energy. But Flannery left the company three months later, and the effort sputtered.

Now, CEO Culp is looking to spin off not only GE Healthcare but also the energy, power and digital businesses. GE said the independently run companies will be better positioned for long-term growth, benefiting customers, investors and employees.

Moody's in a Tuesday report said that GE's previously announced reduction in debt and other obligations of about $60 billion over the period 2021 through 2023 "will be augmented by the de facto transfer of a substantial amount of debt and other obligations to Healthcare at the time of the spin-off." The investor service also said that GE will retain an ownership interest in GE Healthcare of 19.9% that it could divest to help fund additional debt reductions.  

Encompassing diagnostics, interventional imaging, life care and therapy planning, GE Healthcare is a $17 billion business that is seeing "robust" demand, Culp said, with projected market growth in the mid-single digits. The equipment business has more than four million installations worldwide executing more than 2 billion procedures a year.

Still, the healthcare unit was particularly hard hit in the third quarter by supply chain shortages that have plagued the medical device industry. The business reported a 6% decline in revenue to $4.3 billion in the period, compared to a year ago.

Nathan Ray, a partner in the healthcare and life sciences practice at consultancy West Monroe, said GE’s decision to split into three businesses will be a positive move for GE healthcare.

"Within the medtech industry, we have noticed robust M&A activities, which GE Healthcare has virtually not been a part of. Now as a standalone business, GE Healthcare can accelerate decision making, focus on key growth areas and more effectively leverage the scale of the portfolio to participate in future M&A transactions," Ray said.

As separate entities, each of the GE spinoffs will have more strategic focus and financial flexibility to pursue growth opportunities and can allocate capital according to industry-specific dynamics, Culp said. The flexibility will allow the new companies to invest more in existing and adjacent growth markets with new or complementary technology and capabilities.

"In healthcare, this might mean going further upstream into interventional and therapeutic modalities, while integrating around a patient disease state to drive better outcomes and increased productivity," Culp told investors, pointing to GE's recently announced plan to buy surgical visualization specialist BK Medical for $1.45 billion as a step toward that aim.

Culp described the future of healthcare as focused on integrated, efficient and highly personalized care that requires merging clinical medicine and data science by applying advanced analytics and artificial intelligence across every point of the patient's journey.

"GE is one of the few companies with the reach, capabilities and relationships to do this," Culp said.

Arduini, who will take over as president and CEO of GE Healthcare, has held those posts since 2012 at Integra LifeSciences, where he led an acceleration of growth and profitability through both the R&D pipeline and multiple acquisitions. Before joining Integra, Arduini led the medication delivery business at Baxter Healthcare.

Murphy will serve in his current role through the end of 2021 and then as a strategic adviser to the company before retiring.