General Electric Sells Its Underperforming Industrial Solutions Unit to ABB Ltd.

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In this MarketFoolery podcast segment, host Chris Hill, Million Dollar Portfolio's Jason Moser, and Stock Advisor Canada's Taylor Muckerman consider what the $2.6 billion sale of GE's (NYSE: GE) electrification business to Swiss major ABB (NYSE: ABB) says about the longer-range plans of John Flannery, who only took the reins of the company at the beginning of August. The move will provide a chunk of capital he can deploy on further reorganizations -- but what might those entail?

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A full transcript follows the video.

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This video was recorded on Sept. 25, 2017.

Chris Hill: John Flannery has been the CEO of General Electric for about an hour and a half, and already making his mark. GE has sold its industrial solutions division to ABB, which is a maker of power grids that's based in Switzerland. $2.6 billion deal, and I think you indicated this, Taylor, when we talked about Jeff Immelt finally stepping aside as CEO, and one of the things I think you raised at that time was the potential for Flannery to go in the direction of more streamlining.

Taylor Muckerman: Yeah. It certainly seems that way. You've got GE water, the pending divestiture of that. Now you're looking at this business, $2.7 billion being sold for, brought in $2.6 billion in revenue, so it was being sold for slightly less than one times sales. Only brought in about $160 million in profit last year, so it's been underperforming. But, it's being sold to a company that can probably right-size a few things in ABB, the Swiss company. You look at the market, there's people out there that don't expect this to be the last divestiture from Flannery. He's going to probably talk a little bit about it when they release third quarter earnings on Oct. 20, and then probably fully unleash a broader strategic plan at their annual analyst meeting on Nov. 13. So, still probably a few words to be spoken by him, but folks think you could probably even see the healthcare division be parted out or completely sold, and that's the division he holds very near and dear to his heart.

Hill: That would be pretty bold, don't you think?

Muckerman: Yeah. I haven't looked too much into it, but I have seen a few analyst notes suggesting that could be the case. Also lighting and transportation. So, certainly some big divisions out there that could make a big splash in the M&A market.

Chris Hill has no position in any of the stocks mentioned. Taylor Muckerman owns shares of General Electric. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.