GE sheds plastics division

Associated Press
Published May 22, 2007

NEW HAVEN, Conn. - General Electric Co. said Monday it will sell its plastics division for about $11.6-billion in the latest move to reshape one of the world's largest companies.

GE said it would use the proceeds from the sale to petrochemicals manufacturer Saudi Basic Industries Corp. primarily to increase its planned 2007 stock buyback program. It now expects to buy back $7-billion to $8-billion in stock, up from the previous plan of $6-billion.

The deal is expected to create a net gain, after taxes, of $1.5-billion for the conglomerate.

GE chairman and chief executive Jeff Immelt called the long-expected divestiture "another important step" in the company's strategy to sell slower growth businesses, such as insurance, so that it can invest in high-growth, high-technology businesses, like health care and water processing technology.

"We've exited businesses that are volatile, like plastics, and we've got a good run ahead of us, " Immelt said Monday on MSNBC, which is operated by GE subsidiary NBC Universal.

GE's shares traded Monday afternoon at $37.23, up 27 cents. The stock has traded between $32.06 and $38.49 over the past year.

Mark Demos, portfolio manager for Fifth Third Asset Management in Minneapolis, said the sale price came in at the upper end of expectations.

"I think it's a very good price for that asset, " Demos said.

Robert Schenosky, an industrial analyst with Jefferies & Co. in New York, welcomed the sale and said he would like GE to consider more divestitures. By shrinking, GE can make meaningful acquisitions to grow the company faster, he said.

"I think Mr. Immelt fully understands what he needs to do to try to reaccelerate the growth of the portfolio, " Schenosky said.

GE's plastics division dates to 1930, resulting directly from Thomas Edison's experiments with plastic filaments for light bulbs in the 1890s.

The Pittsfield, Mass., GE Plastics supplies plastic resins to the automotive, health care and consumer electronics industries. It employs 10, 300 people and GE values the business at about $6.65-billion.

The division has struggled since 2004 due to rising costs of natural gas and raw materials. Profits for the division fell by 22 percent in 2006, to $674-million.