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Analyst says Flannery's removal at GE could jeopardize spinoff of health-care unit

Key Points
  • GE Healthcare's spinoff could be in jeopardy after news of John Flannery's removal from GE, one analyst says.
  • "Maybe some of the parts that were going to be sold make more sense today," CFRA's Jim Corridore says.
  • According to GE Healthcare, Flannery's removal "does not change what's happening at GE Healthcare."
An examination with a CT scanner is prepared in the emergency room of the university hospital (UKJ) in Jena, Germany. The GE Healthcare scanner is called the Revolution CT.
Martin Schutt | picture alliance | Getty Images

The planned spinoff of General Electric's health unit — GE Healthcare — could be in jeopardy after news that John Flannery was removed as chairman and CEO of the industrial conglomerate, according to one industry analyst.

Jim Corridore, a research equity analyst at CFRA, said Monday that GE's incoming leader, former Danaher CEO Lawrence Culp, could decide that the multibillion-dollar health division would be better off staying within the company.

GE Healthcare, a dominant player in hospital and lab equipment, is a bit of a cash cow, generating roughly $19 billion in revenue and throwing off $3.4 billion in profit last year. It accounted for 15.8 percent of the conglomerate's total sales, and 43.2 percent of its operating profit in 2017.

"Maybe health care is not going to get spun off now," Corridore said in an interview with CNBC's "Power Lunch. " "Maybe some of the parts that were going to be sold make more sense today."

GE Healthcare spokeswoman Jennifer Fox said the unit "plans to continue working toward separation of GE" and news of Flannery's removal "does not change what's happening at GE Healthcare."

And according to GE, the company remains "committed to establishing healthcare as a separate independent entity."

Scott Davis, chairman and CEO of Melius Research in New York, told CNBC that he also doesn't think Flannery's exit changes anything for GE Healthcare. "But I suppose anything is possible," he added.

GE shares were soaring more than 7 percent early Monday afternoon after news that the board removed Flannery from his position.

According to a source familiar with the matter, Flannery's removal was driven by the board's frustration with the slow pace of change under his leadership — not troubles at GE's power business.

Flannery tasked GE Healthcare CEO Kieran Murphy with spinning out the unit into a separate, independent company by the end of 2019. The move made sense for GE, allowing it to double down on its core industrial and energy businesses.

In a recent interview with CNBC, Murphy said he was excited and didn't seem all that worried about the spinoff, calling it "a huge challenge and a great opportunity."

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A monitor displays General Electric (GE) signage on the floor of the New York Stock Exchange.
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Health and Science

The CEO behind General Electric's health unit on cutting ties from struggling parent GE

Key Points
  • GE Healthcare is big enough to make the Fortune 500 list as a standalone company with more than 52,000 employees and $19 billion in annual revenue last year.
  • Murphy could pursue a number of merger and acquisition deals to head off competitors.
  • Both John Flannery and Jeff Immelt had his job before they were tapped to run all of GE.