GE sells biopharma business to Danaher for $21.4B, reconsiders healthcare IPO

Henrietta Brewer
February 27, 2019

Struggling US conglomerate General Electric says it will sell its biopharma unit to US machinery firm Danaher for more than 21 billion dollars.

The biopharma sale also propelled a broad rally in GE's roughly $120 billion of bonds, which had taken a pounding in late 2018 as it became clear that earlier restructuring efforts were falling short and that the company would need to take more aggressive action to address its debt load in particular.

General Electric shares closed higher for a second consecutive trading session in NY on Monday.

Now being part of GE Life Sciences, Pharmaceutical Diagnostics, is expected to remain within the GE Healthcare portfolio, which generated almost $17 billion in revenue in 2018.

GE also today announced the completion of the spin-off and subsequent merger of its transportation business with Wabtec Corporation. Danaher is using the proceeds from the offerings to fund a portion of the purchase price of its pending acquisition of GE Life Sciences' biopharma business. The company divested this unit to "reduce leverage and strengthen [its] balance sheet", Lawrence Culp Jr., GE chairman and CEO, said in a press release.

The deal is expected to close in the fourth quarter of this year. Meanwhile, GE keeps a large proportion of its health assets including the profitable imaging and diagnostics business, which is an important contributor to cash flow.

"[Culp] has earned his stripes", William Blair & Co analyst Nicholas Heymann said, noting that "Danaher is paying GE is two times our expectations".

The transaction allows the company to slim down further, and covers instruments and software that support research and development of biopharmaceutical drugs, a business that comprises about 15 per cent of the revenues of GE's health sector.

"This news meaningfully accelerates our deleveraging plan", Culp, who ran Danaher for more than a decade until 2014, said in an interview.

"These are really complementary businesses when you look across the portfolio of the product line on GE biopharma's side and our side", said Danaher's Chief Executive Officer Thomas Joyce on a call with analysts.

"We're going to focus on improving our core imaging business while we evaluate other options".

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 remaining parts posted about $17 billion in revenue a year ago, the company stated, with operating profit margins in the mid-teens. He is GE's first CEO to be hired from outside the company.

At the end of 2018, GE had $21 billion on the books in outstanding pensions.

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