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PHOTO FILE: The logo of General Electric is depicted on work helmets during a visit to the General Electric offshore wind turbine at Montoir-de-Bretagne, near Saint-Nazaire, in France. 39, West of France, November 21, 2016. REUTERS / Stephane Mahe / File Photo
February 25, 2019
By Ankit Ajmera and Manas Mishra
(Reuters) – General Electric announced Monday it would sell its biopharmacy business to Danaher Corp. for $ 21.4 billion, which would be the biggest strategy reversal since Lawrence Culp took office General Manager of the industrial conglomerate in September.
GE rejected a Danaher approach to this business a year ago. But his position changed after Culp's appointment as CEO and GE's biggest opening to an agreement, according to negotiating people who requested anonymity to discuss it.
As a result, GE will receive a net proceeds of approximately $ 20 billion, which it will use to reduce its debt, which stood at $ 121 billion at the end of December.
The actions of GE and Danaher both jumped at the news of the deal, although GE still faces significant hurdles to regain its former glory. It has lost two-thirds of its market value in the past two years, after a series of operational missteps and investments.
Challenges include mismanagement of orders and operations in its electricity business and the treatment of its long-term toxic care insurance liabilities in GE Capital.
"The GE-Danaher Agreement" unfortunately does not solve the real problems that come back to power. That's what brought down the stock and it's going to take a long time, "said Richard Grasfeder, a portfolio manager at Boston Private Wealth LLC, which held approximately 478,204 shares of GE at the end of 2018, up from 787,600 shares. actions. one year earlier.
Culp said Monday that the sale to Danaher, where he helped revitalize the company as CEO, was a breakthrough in efforts to transform GE, a 126-year-old conglomerate.
"This shows that we are implementing our strategy by taking thoughtful and deliberate steps to reduce our leverage and strengthen our balance sheet," Culp said in a statement.
The sale of biopharmaceuticals also caused a sharp rise in GE bonds, worth about $ 120 billion, which had suffered greatly by the end of 2018, as it had become apparent that Previous restructuring was being missed and the company should take more aggressive steps to counter its debt load in particular.
Larry Culp "won his stripes. It's clear that no one in his job before him – John Flannery or Jeff Immelt – would probably have been able to make this deal with Danaher, "said Nicholas Heymann, an analyst at William Blair & Co.
"And the price Danaher pays GE is twice as high as our expectations. This is a home run. He is now turning the page for GE to address the liquidity issues, "says Heymann.
Until recently, the company planned to split the entire health care unit. Culp, however, said in January that GE would sell nearly half of the unit.
Sources close to the case told Reuters Monday that GE would suspend the initial public offer of the unit until the conclusion of the agreement with Danaher, scheduled for the second half of the year.
This would mean that GE would likely retain access to the profits and cash flows of the remaining healthcare companies for a longer period, which would alleviate some cash flow problems, even if the energy sector is in crisis, has said Rene Lipsch, senior GE analyst at Moody's.
BOOST FOR DANAHER
This purchase is also the largest ever made by Danaher, which has a long history of trading and half of which comes from companies it has acquired over the past seven years.
The agreement will strengthen Danaher's presence in the biopharmaceutical industry by providing access to research and drug development tools. The medical equipment manufacturer's shares rose more than 9% to a record $ 124.07.
Danaher plans to add 45 to 50 cents per share to its adjusted earnings in the first full year following the completion of the transaction, and expects no "significant" antitrust challenge.
"These are really complementary activities when you look at the portfolio of GE biopharma's product line and our side," said Thomas Joyce, Danaher's chief executive, in a phone interview with analysts.
The biopharmaceutical business accounted for 15% of GE's revenue in the healthcare sector in 2018. It manufactures instruments and software that support drug research and development.
The sale leaves GE's healthcare unit with its medical device unit, which produces x-ray, CT and MRI machines, and its pharmaceutical diagnostic unit.
The announcement also eased concerns about GE's creditworthiness, which had increased significantly last year, resulting in a spike in the price of GE credit default swaps (CDS) in the fourth quarter , a form of insurance against the risk of default. On Monday, GE CDS prices fell to their lowest level since mid-October.
GE, which reported lower-than-expected earnings in the fourth quarter in January, is expected to provide its 2019 outlook for an appeal on March 14.
(Report by Ankit Ajmera and additional report by Rachit Vats in Bengaluru and Dan Burns and Greg Roumeliotis in New York, edited by Saumyadeb Chakrabarty, Sweta Singh and Cynthia Osterman)
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