GE GE Aerospace

By Kimberly Chin and Thomas Gryta 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (December 14, 2018).

General Electric Co. said it reached a deal to sell off part of its GE Digital business and set aside the rest in a separate company, as the conglomerate narrows its focus and scales back its software ambitions.

Separately Thursday, one of the company's biggest skeptics JP Morgan analyst Steve Tusa removed his "sell" rating on GE, saying its business is still challenged but the risks are better understood. The company's shares 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 company, 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, and a GE representative said there are no plans to pursue an initial public offering for the independent business at this point.

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 Boston-based company earlier this year 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., The Wall Street Journal had reported in July.

GE has struggled with losses in its core power business and other problems that have forced the company to slash its dividend and break itself apart.

GE's shares, long seen as a haven and symbol of American might, have tumbled by more than half in the past 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 firm 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

(END) Dow Jones Newswires

December 14, 2018 02:47 ET (07:47 GMT)

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