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G.E. to Spin Off Health Care Division as Part of Major Reshaping

When John L. Flannery took over as the chief executive of General Electric last August, he declared that he would not be nostalgic about the industrial giant’s storied past when reshaping the company for the future.

He wasn’t kidding.

General Electric said on Tuesday that it planned to spin off its health care business and sell its multibillion-dollar stake in Baker Hughes, a major producer of oil field equipment, as Mr. Flannery turns the embattled industrial titan into a much smaller company.

The company said it would retain just three major operations: jet engines, electric power generators and wind turbines. Those businesses accounted for 60 percent of the company’s $122 billion in revenue last year.

G.E., once the ultimate American conglomerate and a symbol of corporate power, had endured a painful decline in recent years. Executives could not sell the struggling parts fast enough. In the past year, shares in the company have fallen by half, cutting its market value by $120 billion.

On Tuesday, in a sign of its waning influence, G.E’s stock was officially dropped from the Dow Jones industrial average, having been one of the Dow index companies since 1896.

In November, to help save some money, G.E. announced that it would cut its dividend, only the second time it had done so since the Great Depression.

The current plan, Mr. Flannery said in a conference call with analysts, is to create “a simpler, stronger and more focused company.”

Shares in the company rose on Tuesday, closing 7.7 percent higher as investors welcomed the change.

For decades, G.E. added businesses as varied as home-mortgage lending and entertainment programming with NBCUniversal. The company shed its final stake in the television network and movie studio to Comcast in 2013. The thinking was that its corps of elite managers could make all the divisions profitable, even though they were in far different sectors. Jack Welch, who led G.E. for two decades until 2001, championed that model, becoming a superstar chief executive along the way.

But the weakness of the G.E. model eventually became evident, especially when the financial crisis hit. At the time, G.E. was the largest nonbank financial institution in America, and its liabilities weighed on the industrial company.

Under Mr. Flannery’s predecessor, Jeffrey R. Immelt, G.E. shed much of the finance arm, GE Capital. But Mr. Immelt also made big acquisitions, like building up its oil field machinery business. Soon after, oil prices fell sharply, dragging down profits.

Although the decline of the company was obvious when he took over, Mr. Flannery’s challenge quickly looked far more daunting. The troubles at G.E.’s big power turbine business were deeper than expected. And earlier this year, the company took a multibillion-dollar charge and set aside $15 billion to pay for obligations held by its finance unit, mainly on long-term-care insurance policies.

The travails were not Mr. Flannery’s work, but he inherited them. It was clear that cost-cutting and getting rid of a few smaller businesses, like the spinoff last month of its railroad business, valued at $11 billion, would not be enough. More drastic action was needed, and Mr. Flannery took it on Tuesday.

“G.E. did what it had to do to move forward,” said Steven Winoker, an analyst at UBS. “The vision makes a lot of sense.”

Spinning off the health care business as a separate company, G.E. said, is likely to take 12 to 18 months, and pulling out of Baker Hughes up to three years.

The health care unit, which reported $19 billion in revenue last year, makes equipment ranging from M.R.I. machines to products that aid cellular technology research.

In an interview, Mr. Flannery, who ran G.E.’s health business before he became chief executive, said his experience led him to conclude that it would do best as a separate company, free to seek investment and opportunities on its own.

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