Anyway, this is basically my thesis:
1) GE is traditionally an industrial company, so if they get rid of GE Capital, they could pretty much go back to being a pure industrial company again (with the exception of the 49% of NBC Universal that they currently still own).
2) GE Capital is the main thing that has been holding GE stock down for the past 2 or 3 years. If you look at pre-financial crisis trading levels, the company was valued at about $42/share as recently as September 2007 (which works out to a market cap of about $420 billion, since there were about 10 billion shares outstanding at the time). Now the market cap is pretty much exactly half that, at $207 billion.
3) If you look at the segment information in the 2010 GE annual report (page 39), they show revenues and operating earnings by segment for the past 5 years (2006-2010).
When I do the calculations (and retroactively adjust for the fact that they only own 49% of NBC Universal now instead of 100%), it works out that the combined operating revenues and earnings for all GE segments other than GE Capital has averaged about $95.7 billion and $14.8 billion respectively. Then if we adjust the operating earnings for taxes by assuming they pay around 35% of their operating income in taxes (this is a little over-simplified, but I wanted to keep it as short as possible), we can estimate that GE, excluding GE Capital, has averaged about $9.6 billion ($14.8 billion x [1-0.35]) in earnings over the past 5 years. Then if we apply a multiple of 15-20 to that $9.6 billion, we can estimate that GE excluding GE Capital is worth at least about $144-192 billion. So if we assume that that's true, that means that given the current market cap of $207 billion, the market is valuing GE Capital at between $15 and $63 billion vs. before the financial crisis when they were valuing it at at least around $100-150 billion (back when it was regularly generating like $6-8 billion in earnings and GE's total market cap was around $420 billion).
So I think one thing is pretty clear- the GE Capital segment of GE is being undervalued by the market right now (at only like $15-63 billion right now vs. like $100-150 billion back before the financial crisis). So, to my mind, because of that GE as a company is still pretty significantly undervalued compared to where they were pre-crisis (you might be able to argue it is was overvalued at $420 billion, but I'm pretty sure it's worth at least around $350 billion, based on the fact that they were making like $20 billion/yr before the crisis).
Now here's why I specifically think they should spinoff GE Capital:
1) GE (excluding GE Capital) is possibly worth even more than $144-192 billion, because pretty much all of the other industries that GE is in are growing industries (like healthcare equipment, renewable energy equipment, etc.), so I wouldn't be surprised if it's even worth like $250 billion or more just by itself. But it's a lot less likely that the market is ever going to recognize that if it's muddled up by all of the GE Capital stuff.
2) It would be a lot more likely that GE shareholders could get their value back out of GE Capital sooner, because with GE Capital as a separate business, it would likely be easier for the market to evaluate how much GE Capital is actually worth.
3) I can't find anything in the annual report specifically breaking down how much of the debt is from GE Capital and how much is from the rest of GE's operations, but if you look at comparable industrial companies (like Siemens, United Technologies, Honeywell, etc.) their debt loads are way lower. So I'm pretty sure the vast majority of the ~$300 billion in debt that GE currently has is related to GE Capital. Thus, if they could spin off GE Capital, they could get rid of a lot of that debt.
Anyway, in conclusion, I personally would not want to own GE as it currently is right now, because I'm really weary of financials right now in the wake of the financial crisis (and if I did want to invest in a financial company, I would most likely just invest in a pure bank, rather than having it mixed in with industrials). But if GE ever actually takes mine and others advice and spins off GE Capital, I think there's a pretty bright future still ahead for GE. They're in a lot of good, decently growing industrial businesses, and I just think it's time for them to shed the financial side of their business. If they can, I really think that GE could be a great long-term hold.
The benefit of spinning off GE Capital rather than selling it is that they don't have to worry about finding a specific buyer and also they're not short-changing current shareholders by selling GE Capital for cheap when it's down, because they'd be giving the company to the shareholders and just giving them the option of either selling or waiting for the recovery. Some shareholders will hold onto GE Capital until it fully recovers and others will take the option of selling the financial exposure and just holding on to the core industrial company that will be left after the spinoff.
Let me know if you agree or disagree with my reasoning.
VF
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