Reversing Itself, GE Sells BioPharma Biz To Danaher For $21.4B 02/26/2019

Reversing Itself, GE Sells BioPharma Biz To Danaher For $21.4B 02/26/2019

General Electric has agreed to sell its biopharma business to Danaher Corp for $21.4 billion in the biggest change of strategy after Lawrence Culp took over as chief executive of the industrial conglomerate in September a year ago.

GE stock leapt 15.5% in early Monday trading on the news and remains up 8.8% as of 11:40 a.m. EST.

The BioPharma unit, which the industrial conglomerate intends to divest, represents part of GE Life Sciences, while it generated nearly $3 billion in revenue a year ago.

The announcement also further eased concerns about GE's solvency that had grown markedly a year ago, reflected in a surge in the price for GE credit default swaps, a form of insurance against default, during the fourth quarter.

In the transaction, GE received approximately $2.9 billion in cash as well as shares of Wabtec common stock and Wabtec non-voting convertible preferred stock that, together, represent an approximately 24.9 per cent ownership interest in Wabtec.

The sell-off throws cold water on the giant's plans to spin out GE Healthcare through an IPO, Culp said in a Monday interview with Bloomberg. The strategy came as a surprise for most given that GE had previously rejected bids for its biopharma business from Danaher Corp before.

The bio-pharma sale, Culp's biggest so far, puts an exclamation point on his bid to pull GE out of one of the worst slumps in its 127-year history. Shares of Danaher were up more than 9 percent.

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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.

Pharmaceutical Diagnostics, now part of GE Life Sciences, will remain within the GE Healthcare portfolio.

In November, GE announced it would expedite efforts to sell a $4 billion stake in the oil-field-services provider Baker Hughes.

Another analyst, Dan Brennan of the investment bank UBS, said it "looks like a great fit" for Danaher, particularly given how it fits with a previous acquisition of Pall, he wrote in a February 25 note to investors. The deal with Danaher will leave GE with a health-care business generating about $17 billion in annual sales. GE is expected to report its 2019 outlook at an earnings call scheduled on March 14.

Culp at the time said, "I'm confident in our team, technology, and the global reach of GE's brand and relationships".

Then, with $21 billion worth of new cash in hand, GE can set about using "the proceeds from the transaction to reduce leverage and strengthen its balance sheet". He is GE's first CEO to be hired from outside the company.