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

(Bloomberg) -- General Electric Co. soared 15 percent after agreeing to sell its bio-pharma business to Danaher Corp. for $21.4 billion, a transformative step in the new CEO’s effort to rescue the troubled behemoth.

GE halted plans to spin off its broader health-care business as it focuses on completing the deal, Chief Executive Officer Larry Culp said Monday in an interview. GE will receive cash proceeds of about $21 billion for the bio-pharma operation while also transferring certain pension liabilities to Danaher, a company that Culp ran for more than a decade until 2014.

“This news meaningfully accelerates our deleveraging plan,” he said. “You can see the tide beginning to turn where we can really focus on a little less defense, a little more offense.”

The Danaher deal underscores Culp’s aggressive approach to pulling GE out of one of the worst slumps in its 127-year history. Investor losses totaled more than $200 billion in the past two calendar years as the Boston-based manufacturer struggled with mounting debt, cash shortfalls and a deep slump in the market for gas turbines.

While GE still faces a range of challenges, the bio-pharma sale will bring in cash as the company rushes to strengthen its balance sheet. Culp, who became CEO after the surprise ouster of John Flannery in October, has already announced an overhaul of the ailing power-equipment business while taking steps to cut expenses and repay debt.

“Culp is definitively turning the page on GE’s transformation, from adequacy of liquidity to power restructuring and revitalization,” said Nicholas Heymann, an analyst with William Blair & Co.

GE jumped 15 percent to $11.68 at 9:39 a.m. in New York after climbing as much as 16 percent for the biggest intraday gain since the company reported earnings Jan. 31. The shares have advanced 34 percent this year through Feb. 22, the biggest gain on a Standard & Poor’s sub-index of U.S. industrial companies, as the stock rebounds from a 57 percent decline in 2018.

For a look at how GE’s Danaher deal will prioritize debt reduction, click here

The cost to insure against a GE default dropped to the lowest in four months. Five-year credit-default swaps tied to the company fell 25 basis points to 104.5, according to prices compiled by CMA.

Danaher’s shares climbed 7.8 percent to $122.32 after advancing as much as 9.4 percent for the biggest intraday gain in a decade.

Ross Muken, an analyst with Evercore ISI, called the price “very favorable” for Danaher.

“The transaction Danaher shareholders have been clamoring for finally came true,” Muken said.

GE Turnaround

The bio-pharma unit, which makes equipment for manufacturing biotechnology and drug therapies, represents about $3 billion of GE Healthcare’s annual sales. The deal, expected to close by the end of the year, is not subject to a financing condition or a shareholder vote, GE said in a statement.

The previously planned initial public offering of the health unit, which includes life-sciences operations as well as a sizable business making imaging machines, 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. GE completed the transportation deal Monday as it merged the locomotive unit with Wabtec Corp.

GE will now turn its attention to completing the bio-pharma sale, Culp said. The deal with Danaher will leave GE with a $17 billion business manufacturing MRI machines and other equipment.

“We’re going to focus on improving our core imaging business while we evaluate other options. It’s unlikely we would do something here in the near to medium term,” Culp said. “What today does is it allows us to explore any and every option for that core imaging business.”

Danaher Shift

Danaher has refocused on health care after spinning out Fortive Corp. in 2016, shedding its industrial business arm. It bought Cepheid, a molecular diagnostics and medical testing company, for about $4 billion in 2016. In 2018, it acquired Integrated DNA Technologies, which makes products for gene-sequencing and editing for $2 billion.

The GE deal would be Danaher’s biggest takeover by a wide margin, however, and should fundamentally reshape its business and make it a major provider of technology and tools to biotechnology and drug companies. The unit makes everything from lab supplies to complex cell-processing technologies that are used to manufacture and test cutting-edge, boutique medicines.

Danaher will pay for the GE purchase with cash and $3 billion raised from an equity offering, plus new debt or credit.

The Washington-based company may also be able to use cash from a pending spinoff of its dental unit, which will be divested through an initial public offering to shareholders. The dental unit had sales last year of $2.81 billion. In an IPO, it could have an equity value of about $5.6 billion to $6.5 billion, Evercore’s Muken said.

The GE deal “is likely to be a multiyear home run” for Danaher, he said. The transaction gives Danaher “tremendous assets, uniquely leveraged to bio-pharma manufacturing, with a market-leading footprint notably in downstream.”

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