NEW YORK (TheStreet) -- General Electric (GE) - Get Report is expected to sell off most of its mammoth finance unit, GE Capital, by 2018, beginning with the sale of its real estate division to Blackstone (BX) - Get Report and Wells Fargo (WFC) - Get Report for $26.5 billion.
The news was first reported by The New York Times. GE's stock opened sharply higher on the news.
"This isn't a cycle. This is a generational move," GE Chairman & CEO Jeffrey Immelt told CNBC in a Friday interview. He also said it will lower GE's risk.While the company has considered shedding GE Capital for a number of years, Chairman and CEO Jeff Immelt, in an interview with CNBC, said now was the ideal time.
"You really have a perfect market to be selling financial service assets, so you've got slow growth, low interest rates, lots of liquidity, people searching for yield," Immelt said. "We think it's good for the regulatory world, it's good for investors. And that's been more or less recent. Now's the time to do it." GE's stock price has slumped 37% since CEO Jeffrey Immelt took the reins of the company in September 2001.
Former GE Chairman & CEO Jack Welch weighed in on the news, telling CNBC: "I like the package. It looks like a smart move and right for the changing financial landscape."
While highly profitable, GE Capital is subject to heavy financial regulation and scrutiny, especially in the aftermath of the 2008 financial crisis.
Now GE is looking less like a conglomerate and instead, a more focused organization relying on its core competency: industrials. That includes its aerospace and power divisions.
"This sale is a large part of GE Capital and the move today signals the acceleration of the pace away from finance, which we think will unlock a higher valuation for the company because industrials tend to trade at higher valuations than finance companies," said Jim Corridore, an anlalyst with S&P Capital IQ. "The remainder of GE Capital may have either one or two buyers or multiple small buyers."
Corridore maintains a buy rating on the stock and upped its 12-month price target by $3 to $34 per share.
Though GE's senior unsecured debt was downgraded to A1 from Aa3 at Moody's. "The downgrades reflect our perception of a growing level of financial risk tolerance, in favor of equity holders and at the expense of creditors," said Russell Solomon, senior vice president and Moody's lead analyst for GE. "GE has been increasing cash payments to shareholders for several years but has not yet achieved a commensurate increase in operating earnings and cash flow."
While details on the sale of the overall GE Capital finance unit remain unclear, its real estate division will be split between Blackstone and Wells Fargo, two companies with significant exposure to real estate.
Wells Fargo will acquire GE's commercial loans for $9 billion, while various Blackstone real estate funds will assume the remainder of GE's real estate arm, valued at approximately $14 billion.
TheStreet's Dividend Stock Adviser said management is likely to maintain its 23 cent per share dividend through 2016.
This isn't the first move GE has made in an effort to focus on its core businesses. In 2014, GE sold its appliances unit to Sweden-based Electrolux (ELUXY) for $3.3 billion and acquired the energy components of French train company Alstom (ALSMY) for $15.4 billion.