GE eyes spin-off for consumer-industrial unit

BOSTON (Reuters) - General Electric Co (GE.N) said on Thursday it will look to spin off to shareholders its entire consumer and industrial unit, signaling it is ready to part with a much larger slice of its portfolio than just the $7 billion appliance arm it has been seeking to sell.

Analysts described the move as a sign GE is willing to quickly shake up its portfolio in the wake of an unexpected drop in first-quarter profit. The GE's industrial division -- not all of which is targeted for spin-off -- accounted for about 10 percent of GE's $172.74 billion in revenue last year.

"The writing was on the wall," said Matt Collins, capital goods analyst at Edward Jones in St. Louis. "It's been an area that they have not invested heavily in recent years. It's not a high-growth area. It's not a very profitable area."

When the Fairfield, Connecticut-based company put its appliance unit on the block in May, it held out the possibility of a spin-off. But investor attention has focused on the sale after GE Chairman and Chief Executive Jeff Immelt rattled off a list of Asian companies that he said were in the running to buy the unit, which makes products including dishwashers and refrigerators.

"As we explored our options for appliances, it became clear that the fastest, most efficient step we could take in completing the transformation of our industrial portfolio would be to focus on a possible spin-off of the entire unit," Immelt in a statement on Thursday.

WORRIES FOCUSED ON FINANCE

But calls by analysts and investors to simplify GE's sprawling operations -- which range from making jet engines to writing commercial loans to running NBC Universal media -- have not focused on the appliance and lighting arms.

Rather, some on Wall Street have expressed concerns about GE's financial operations, which represent about half the company and were responsible for its stunning first-quarter earnings shortfall.

The move "shows an accelerated pace of evolution that investors may well prefer over gradually evolving while trying to grow annual earnings," Lehman Brothers analyst Robert Cornell wrote in a note to clients.

GE is also trying to sell off slices of its financial portfolio, including its Lake Japanese consumer lending business and its U.S. private-label credit card operations.

But the appliance and lighting units are the two businesses that U.S. consumers most closely associate with the GE brand. The spin-off would include all of GE's Industrial division except for a unit that sells security and control equipment to corporate customers, a spokesman said.

'SENSE OF URGENCY'

Investors had suggested GE's appliance arm would have appealed to a large foreign manufacturer looking to build its presence in the United States. That perception was reinforced when Immelt told Asian reporters that China's Haier Group, South Korea's LG Electronics (066570.KS), Sweden's Electrolux (ELUXb.ST), Mexico's Controladora Mabe and Turkey's Arcelik (ARCLK.IS) were "obvious" potential bidders.

Some analysts noted the move could be viewed as a negotiating tactic in effort to sell the appliances arm. GE could continue to shop the appliance business with an eye toward "creating a sense of urgency among potential bidders," Goldman Sachs analyst Deane Dray wrote in a note to clients.

The announcement comes a day before GE is due to report second-quarter results.

GE shares rose 25 cents to $27.44 on the New York Stock Exchange.

Since GE's first-quarter report, its shares have lost 25 percent of their value, a far deeper slide than the 8 percent decline of the Standard & Poor's 500 index .SPX and the 11 percent fall of the Dow Jones industrial average .DJI.

(Editing by Gerald E. McCormick and Derek Caney)