GE Surges After Agreeing to $21.4 Billion Sale of BioPharma Unit

John Minchillo  Associated Press  File/2018

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.

GE's Biopharma business - under GE Life Sciences - garnered revenues of about $3 billion in 2018, compared with about $17 billion for GE health assets not included in the deal, which includes radiology and other diagnostic imaging systems. Culp, who became chief executive officer after the surprise ouster of John Flannery in October, has already announced an overhaul of the ailing power-equipment business, stepped up cost cuts and revamped a divestiture of GE's locomotive unit to increase cash potential.

Shares of GE opened up more than 13 percent on the New York Stock Exchange following the news Monday.

"Today's transaction is a pivotal milestone", said GE CEO Lawrence Culp, Jr.in a press release. Danaher, a medical technology company based in Washington, D.C., said GE's biopharma segment will operate as a separate company within Danaher's $6.5 billion Life Sciences division. The sale could give GE a big advantage in addressing its liquidity problems. The company is also spinning off the remaining healthcare business, selling GE Capital assets and retreating from the oil-and-gas giant Baker Hughes.

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

Shares of GE rocketed higher after the announcement. The verdict is not universal that Danaher stole the company, but the reports all had something positive to say about the deal.

The company had said in July past year that it expected to spin off its dental unit into a publicly traded company to be tax-free to shareholders.

We think this is a natural fit for Danaher's existing business, and both eliminates a major competitor in this business and creates a wide moat and gap between DHR and other competitors.

"We have too much debt", Culp said. The company also reported, though, that cash flow from operations was down 8.6% year over year, to about $6.4 billion.

The biopharma unit makes equipment for manufacturing biotechnology and drug therapies.

GE's decision to sell GE BioPharma to its CEO's old company may raise eyebrows among investors.

Danaher expects to finance the all-cash transaction with approximately $3 billion of proceeds from an equity offering (which may include an offering of mandatory convertible preferred shares), and the remainder from available cash on hand and proceeds from the issuance of debt and/or new credit facilities.

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