GE Selling Biopharma Unit in $21.4 Billion Deal

Pearl Mccarthy
February 27, 2019

This morning, General Electric announced that it has reached a "definitive agreement" to sell its BioPharma business to Danaher - GE's CEO's old shop - and GE will receive $21.4 billion in return.

General Electric's (GE's) sale of its biopharma unit on February 25 is created to reduce the company's overall debt load, and CEO Larry Culp said the deal is the latest step in his plan to strengthen the whole of GE, particularly the company's struggling Power division.

Shares of GE jumped 15.1 per cent to $11.71 in early trading, while Danaher gained 8.5 per cent to $123.08. The shares have advanced 34% this year through Feb 22, the biggest gain on a Standard & Poor's sub-index of U.S. industrial companies.

The previously planned initial public offering of the health unit, which includes life-sciences operations as well as a sizable business making MRI machines and other equipment, had been slated as a key pillar of Culp's turnaround, alongside the sale of GE's stake in Baker Hughes and the divestiture of GE Transportation.

Shares of GE rocketed higher after the announcement.

Reuters' Ankit Ajmera and Manas Mishra call the deal "the biggest strategy reversal since Lawrence Culp took over" as GE CEO last fall after abruptly firing John Flannery. The deal is expected to close in the fourth quarter of 2019 and we see limited regulatory risk. Danaher will pay $21 billion in cash and assume certain GE pension liabilities. The company has so far lost two-thirds of its value in the last two year.

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For GE, the biopharma business is a relatively small chunk of its larger healthcare business.

Instead, the company will prioritize completing the Danaher deal while retaining the rest of its healthcare unit.

"[Culp] has earned his stripes", William Blair & Co analyst Nicholas Heymann said, noting that "Danaher is paying GE is two times our expectations". The remaining parts posted about $17 billion in revenue a year ago, the company stated, with operating profit margins in the mid-teens. On Monday, GE's CDS prices sank to their lowest since mid-October. GE's BioPharma business encompasses process chromatography hardware and consumables, single use technologies, cell culture media, development instrumentation and consumables, and service. "It's unlikely we would do something here in the near to medium term", he said.

GE also said that weakness in the GE Power unit meant it would miss its 2018 free cash flow and earnings guidance target, with the company taking a $23 billion goodwill charge to the Power division.

"GE Healthcare has unsurpassed scale and scope and we will continue to focus on our investments so that we deliver better outcomes and more capacity to a world striving for precision health", GE Healthcare president and CEO Kieran Murphy said.

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