Ahead of its Investor Day event Wednesday, General Electric Co. (NYSE: GE) announced that it is selling its aircraft leasing business, GE Capital Aviation Services (GECAS), to rival AerCap Holdings N.V. (NYSE: AER) for $30 billion. The deal was reported, but not confirmed, earlier this week.
According to the announcement, GE will receive approximately $24 billion in cash and a 46% stake in the combined company, along with $1 billion in AerCap notes or cash paid at closing. GE plans to use proceeds from the sale to reduce debt.
GE CEO Larry Culp said that the company will have reduced its debt by some $70 billion since the end of 2018 after the sale closes. At the end of December, GE’s total debt amounted to $4.8 billion in short-term borrowing and $70.3 billion in long-term debt.
Culp commented: “Coupled with our continuing efforts to strengthen GE’s performance, operations, and culture, this deal brings GE closer to our future—delivering value for the long term and leading the energy transition, precision health, and the future of flight.”
The company also said it will take a noncash charge of around $3 billion in connection with the sale and will report its GECAS business as a discontinued operation. The transaction is expected to close in nine to 12 months, pending approval of AerCap shareholders, regulatory approvals and other customary closing conditions.
In an announcement of the Investor Day event, GE revealed that its board of directors is prepared to recommend that shareholders approve a 1-for-eight reverse stock split. The company noted: “The reverse stock split would decrease the number of shares outstanding to a number more typical of companies with comparable market capitalization.”
GE reported some 8.74 billion shares outstanding at the end of December, and the company’s market cap at Tuesday’s close was $122.75 billion, or $14.00 per share. At that level, the share price following the proposed reverse split would be $112.00. S&P 500 companies with similar market caps include Boeing, Caterpillar, Raytheon and UPS. Boeing has about 584 million shares outstanding while Caterpillar has 545 million, Raytheon has 1.5 billion and UPS has nearly 720 million.
If the reverse split is approved, it would become effective at the board’s discretion at any time prior to the one-year anniversary of GE’s annual shareholders’ meeting scheduled for May 21, 2021.
GE also reiterated its outlook for the 2021 fiscal year. When the company reported fourth-quarter results in January, GE said it expected Industrial segment revenues to rise in the low-single-digit range and the segment’s profit margin to expand organically by more than 2.5%. Adjusted EPS was forecast in a range of $0.15 to $0.25, and Industrial free cash flow for the year is expected to range between $2.5 billion and $4.5 billion.
GE stock traded up about 1.7% in Wednesday’s premarket session, at $14.24 in a 52-week range of $5.48 to $14.41. The high was posted Tuesday, and the consensus price target on the stock is $13.03.
AerCap stock traded up 2.7% to $57.49, in a 52-week range of $10.42 to $60.00. The consensus price target is $55.00. AerCap does not pay a dividend, and GE’s dividend payment is $0.04 annually.