General Electric shares are sinking after a reverse share split proposal, confirming AerCap's $ 30 billion deal

General Electric shares are sinking after a reverse share split proposal, confirming AerCap’s $ 30 billion deal

General Electric shares plunged on Wednesday, after the industry conglomerate confirmed a $ 30 billion deal with AerCap Holdings, while surprisingly it also suggested a reverse stock split of 1 versus 8.

General Electric, which hosted a meeting of analysts early Wednesday, provided financial guidance for 2021, with the revised earnings range being somewhat pessimistic, but revenue and free cash flow ranges in line with expectations.

GE stock,
The swung index fell 6.0% in morning trade, putting it on course for its biggest one-day decline since September 21, 2020, when it fell by 7.7%. The drop comes after the stock rose 11.6% in March through Tuesday, including a 3-year high of $ 14.17 on Monday, while the S&P 500 SPX index,
+ 0.30%
It gained 1.7% during the same time.

A reverse split may surprise investors because they are usually reserved for companies that are concerned that their share price may be, or have fallen below, limits that might push mutual fund investors to avoid stocks or urge exchanges to issue delisting notices. Read more about a reverse stock split.

In GE’s case, the company said its board of directors was recommending a split of the reserve, which will be voted on by shareholders at the annual meeting in May, given the company’s “significant transformation” over the past several years.

“A reverse share split will reduce the number of shares outstanding for a more typical number of companies with a similar market value,” GE said in a statement.

FactSet, MarketWatch

General Electric had a market cap of $ 122.75 billion as of Tuesday’s closing share price, and it had 8.77 billion shares outstanding as of January 31. In comparison, Lowes Companies Inc. LOW,
+ 0.73%And the
With a market capitalization of $ 121.34 billion, it has about 734 million shares outstanding, while Starbucks Corp. SBUX,
+ 1.92%And the
With a market capitalization of $ 125.44 billion, it has 1.18 billion shares outstanding.

A proposed reverse split by General Electric would multiply the share price by eight, while reducing the number of shares outstanding to around 1.1 billion. If the shareholders approve the split, the split will take effect at the discretion of the GE Board of Directors, at any time prior to the first anniversary of the Annual Meeting on May 4, 2021.

General Electric confirms AirCap deal

General Electric on Wednesday confirmed an agreement to merge GE Capital Aviation Services (GECAS) aircraft leasing business with AerCap in Deal brings more than $ 30 billion in value For GE shareholders.

The Wall Street Journal reported earlier this week that a deal was imminent.

Under the terms of the deal, GE will receive $ 24 billion in cash and 111.5 million common shares, with a market value of approximately $ 6 billion representing 46% of the ownership interest in the combined company.

GE said it plans to use the proceeds from the deal to further reduce debt, which would bring the total debt reduction since the end of 2018 to more than $ 70 billion.

The deal is part of a multi-year effort by General Electric to reduce risk at GE Capital, which is expected to have assets estimated at $ 21 billion after the deal closes, down from $ 68 billion at the end of 2020. The deal is expected to arrive. To close in nine to 12 months. Once the deal closes, those remaining assets will become part of the consolidated industrial balance sheet.

“Today marks GE’s transformation into a more focused, simpler, and stronger industrial company,” said CEO Larry Kolb.

“AerCap is the right partner for the exceptional GECAS team,” Kolb said. “We are creating an industry-leading airline charterer with experience, expansion and access to better serve customers around the world, while GE earns both cash and a meaningful stake in the most powerful merger, with the flexibility to generate income as the airline industry recovers.”

Financial guidance for General Electric

As part of Analysts’ Day, General Electric provided details on its 2021 financial guidelines.

The company expects adjusted earnings per share for the full year to be from 15 cents to 25 cents, compared to FactSet’s consensus of 25 cents.

On the revenue side, GE expects growth in the “low one-digit” percentage range, while FactSet’s current revenue consensus of $ 80.4 billion means a 1.0% upturn.

Free cash flow is expected to range from $ 2.5 billion to $ 4.5 billion this year, which surrounds FactSet’s consensus of $ 3.6 billion.

GE said its guidance is based on the assumption that the aviation market will start to recover in the second half of the year. GE assumes growth in the renewable energy market, a rapid energy transformation, and sees a “attractive” healthcare market, as surveys return to pre-COVID levels.

“We are on a positive path in 2021 as momentum builds across our business and we are transforming into a more focused, simpler and stronger industrial company,” said CEO Kolb. “We are excited to shift more towards the offensive, investing in cutting-edge technologies to meet the needs of our customers and the world – for more sustainable, reliable and affordable energy; more integrated and personalized healthcare; and a smarter and more efficient journey.”

GE shares are now up 16.2% over the past three months and up 48.6% over the past twelve months. In comparison, the SPDR Industrial Select Sector XLI exchange-traded fund,
+ 0.38%
It advanced 36.6% over the last year and the S&P 500 is up 34.9%.

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