Adam Ungar, Lavanya Lipika, Sultan Adebayo, Yuqi Zhang

Team 15
GE Case
Executive Summary:

General Electric is a multinational conglomerate founded in 1890. In the beginning, GE was an

amalgamation of several electronic-oriented businesses, but throughout the century, GE would expand

and diversify and have five main divisions which were Energy infrastructure, technology infrastructure,

financials, consumer industrial and media. Jeff Immelt the CEO of GE at the time was considering whether

the company would be better off if it remained as a conglomerate or if breaking up the company would

unlock the true potential of GE. Some departments of GE were struggling following the financial crisis of

2008, and it was becoming increasingly more attractive to break up the company.

To be able to analyze if breaking up the company would be better for the shareholders, we need to

consider the performance of the various divisions individually. To do this, we would need to consider

comparable companies in similar industries that have similar revenues to the divisions of GE in those

industries. Once these firms have been identified, then we calculated the enterprise value/sales, market

cap to BV and the EBITDA margins of the conglomerate as a whole and the divisions of GE and these

companies. Next, we calculated Price/Earnings and Enterprise Value/EBITDA ratios and finally calculated

the contribution and percentage contributions of every division of GE.

Using all this information we calculated the value and potential share price of each GE divisions. Using the

PE ratio, we calculated the value of GE Corporate. We used the PB ratio to calculate the price of the

financial division, and the used the EV/EBITDA ratio to calculate the value of the other divisions. After

finding all of these values and potential stock prices we summed this up and found that the company,

when broken up, is less valuable when compared to the value of the company as a conglomerate.
Question 1

Siemens and Boston Scientific should be eliminated because Siemens is too large and Boston scientific is

too small to compare with GE concerning revenue. The technology segment is 26% of GE revenues and is

compared with the revenues of the other companies. We multiplied the total GE revenue by 26% and

compared it with the other comparable companies after converting Euros to dollars in the case of

international companies.

Question 2

Question 3
Question 4
Question 5

Question 6
Question 7

Question 8

Share price is larger than the parts combined price which means that GE is worth more as a whole

company that its separate divisions. Therefore, the company should not divest as it may damage the

overall higher value of GE.

Question 9

WE believe we should adjust the multiples from question 8 because GE’s technology infrastructure EBITDA

is growing faster than that of its comparable companies and generating higher margins, so it is not

appropriate to use the median comparable value ratio for each segment. Instead, the third quartile of the

valuation ratio should be used which gives a higher parts-combined price for GE. Compared to our
response from question 8, this new information makes it more beneficial to divest because the value of

the individual parts of the company is higher than the price of the whole of GE.