General Electric is getting out of the lending business and back to its industrial roots.
The conglomerate announced on Friday that it was shedding most of GE Capital, its financial arm. It also said it would use the proceeds to fuel a massive $50 billion share buyback program.
Shares of GE surged more than 7% to $27.61 in premarket trading.
“This is a major step in our strategy to focus GE around its competitive advantages,” said CEO Jeff Immelt in a statement. “We are completing another definitive and important move to reshape GE for the future.”
To kick things off, GE will raise $26.5 billion by selling the bulk of its real estate assets. Most of the real estate will go to funds managed by Blackstone, while Wells Fargo will acquire a portion of the performing loans at closing. It plans to sell another $4 billion worth of commercial real estate too.
In the years since the financial crisis, the company has doubled down on efforts to slim down. Last year it spun off its retail banking business Synchrony Financial in an IPO. In 2013, it sold its remaining stake in NBC Universal to Comcast.
It expects that by 2018, 90% of its earnings will be generated by its industrial businesses, up from 58% in 2014. GE is behind products ranging from kitchen appliances and laundry machines to military aircraft engines and steam turbines.
The Fairfield, Connecticut-based company plans to shed its financial assets over the next two years and is working with regulators to rid itself of its so-called SIFI status, a designation given to financial institutions considered systematically important and whose collapse could trigger financial distress.
Investors have long viewed GE Capital as too risky, and the company itself has said the pieces are more valuable than the whole.
“Coming out of the financial crisis, financial markets have changed for a generation…the business model for large, wholesale-funded financial companies has changed, making it increasingly difficult to generate acceptable returns going forward,” said Immelt in a letter to shareholders.”The market is strong for the businesses we will sell, and I am confident they will thrive elsewhere.”
As a result of the move, some $90 billion in buybacks and dividends could be returned to shareholders through 2018, the company said. It plans to keep its dividend at the current level through 2016 and grow it thereafter.
Shares of GE are up just 5% over the last 12 months and remain well-below pre-recession highs north of $40.
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