U.S. industrial giant General Electric will split into three companies following years of seeing its stock underperform, the company announced Tuesday.
The company will be divided into separate units focused on aviation, health care and energy. GE plans to spin off the health-care unit by early 2023 and the energy unit by early 2024, the company said in a news release.
GE shares, which were already up 55% over the last 12 months, rose more than 2% on Tuesday even as the broader market pulled back.
"By creating three industry-leading, global public companies, each can benefit from greater focus, tailored capital allocation, and strategic flexibility to drive long-term growth and value for customers, investors, and employees," CEO Lawrence Culp said in a statement accompanying the announcement. "We are putting our technology expertise, leadership, and global reach to work to better serve our customers."
The moves are a ways off so specific naming decisions have not yet been made, but the current General Electric will be the aviation-focused company.
General Electric was co-founded in the late 1800s by Thomas Edison and went through several transformations over the last century as the U.S. economy changed, becoming a leader in appliances, jet engines and power turbines.
The conglomerate expanded rapidly in the 1980s under the late Jack Welch, getting into financial services and back into broadcasting with the purchase of NBC, sporting enviable earnings growth and returns for investors along the way.
GE spent periods as the largest company by market value as recently as the early 2000s, but then the financial crisis hit. Weighed down by its troubled financial arm, GE was never able to climb back on top under Welch's successor, Jeff Immelt. The stock was dumped from the Dow Jones Industrial Average in 2018 after being one of the original members of the blue chip index going back to 1896.
Culp, who previously ran Danaher, took over as CEO of GE in 2018. The company has spun off or sold several of its units under Culp as the executive has tried to simplify the conglomerate's business structure.
"We've made a lot of progress, not only with the balance sheet but improving our core operations, over the last several years," Culp said Tuesday on a call with investors and analysts. "But I think as we've seen in so many instances outside of GE over the last decade, spinning good business heightens focus and accountability."
Despite the recent outperformance, GE shares have badly underperformed the market over the last two decades. The stock has lost 2% annually since 2009, compared with a 9% annual return for the S&P 500, according to FactSet.
The decision by GE earned praise from Wall Street analysts Tuesday morning.
"The move does add cost, but nimbleness of three focused companies will likely be viewed as an opportunity set to more than offset any new costs," Wells Fargo analyst Joseph O'Dea said in a note to clients.
The company has been plagued by high levels of debt in recent years that have drawn skepticism on Wall Street. The capital structures of the new firms will be announced at a later date, GE said, and Culp added on a call with investors that the energy segment will have the least amount of debt.
The company said it will use proceeds from the recent sale of its aviation financing unit to pay down debt, with gross debt expected to total less than $65 billion by the end of 2021. The spinoffs will cause about $2 billion in transaction and operational costs, GE estimated.
— CNBC's John Melloy and Michael Bloom contributed to this story.