Wall Street was elated to learn yesterday that General Electric - which was delisted from the Dow Jones industrial average last year after a 110-year run - is selling its BioPharma subsidiary to Danaher Corp. for $21.4 billion.
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. The company also points out that the net price of the deal will be $20 billion after taking into account for tax benefits.
GE jumped 6.4 percent to $10.82 at the close in NY, the highest level since October 29. The company's shares have risen about 34 percent since the beginning of the year, but are still down nearly 30 percent from a year ago. "GE will retain its other main life sciences business, pharmaceutical diagnostics, which it sees as a better fit with its medical equipment such as scanners".
"Today's transaction is a pivotal milestone", said GE Chief Executive Lawrence Culp. The mostly-cash transaction is expected to close in the fourth quarter of this year. The firm's Kevin Huang believes this reflects strong momentum and his positive view of the news to acquire GE's biotechnology instrument division for $21 billion in cash. That will leave GE with a US$17 billion business manufacturing MRI machines and other imaging equipment. It includes instruments, supplies and software for the objective of research, discovery, process development and manufacturing workflows of biopharmaceutical drugs.
The purchase is also the biggest yet for Danaher, which has a history of deal-making, and half of its revenue has come from companies it has acquired in the past seven years. "To do this, we are improving execution, customer focus, and how we set priorities across GE". "A more focused portfolio is the right structure for GE, and we have many options for maximizing shareholder value along the way", he added.
"GE Biopharma is renowned for providing best-in-class bioprocessing technologies and solutions", said Danaher CEO Tom Joyce.
DHR stock was up 7% and GE stock was up 8% as of noon Monday.
While GE embarks on a road of significant restructuring under its new CEO, Larry Culp, Danaher will grow one of its core business areas in life sciences through the big buyout. The remaining parts posted about $17 billion in revenue past year, the company stated, with operating profit margins in the mid-teens. "That's what took the stock down, and that's still going to take some time play out", said Richard Grasfeder, a portfolio manager at Boston Private Wealth LLC, which held about 478,204 shares in GE as of the end of 2018, down from 787,600 shares a year earlier. "It's unlikely we would do something here in the near to medium term".