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(Bloomberg) – General Electric Co. is taking a big step toward debt relief of $ 121 billion by selling part of its burgeoning life sciences division.
The industrial giant has agreed to sell its biopharmacy business to Danaher Corp. for a total consideration of $ 21.4 billion to reduce its debt, according to a statement released Monday. The transaction is expected to close in the fourth quarter of this year.
Chief Executive Larry Culp, who took the helm of GE in September after successfully transforming Danaher, prioritized GE's three customer "C's" of customer, competition and cash flow . It has already reduced the company's quarterly dividend and announced several sales of less important assets to finally bring the industrial financial leverage to 2.5 times more than the net result, with the aim of finding a single credit rating.
"This agreement has led us to about two-thirds of our goal of reducing net industrial debt to 2.5 Ebitda," Culp said in an interview Monday, referring to earnings before interest, taxes, depreciation and amortization. "It's not a declaration of victory. We still have a lot of work to do and we will do other things over time. "
GE bondholders applauded this news. The risk premium on one of its most traded notes, the 4.418% maturities to 2035, was tightened by 29 basis points to 222 basis points compared to treasury bills, according to price data from Trace bonds. The price to insure against a GE defect dropped to a four-month low, based on prices set by the CMA. GE shares jumped 7.5% to $ 10.94 at 15:07. At New York.
Formerly a symbol of financial stability, GE fell out of favor, the weakness of its production unit and the high level of debt left society struggling with a multi-pronged crisis. Not only have shareholders lost billions of dollars in market value, but bondholders have also suffered many credit degradations. It is now ranked three times above the speculative rating by the top three rating companies with stable outlooks for Moody's Investors Service and S & P Global Ratings, while posting a negative outlook from Fitch Ratings.
GE had previously considered separating its health care unit, which includes life science sector activities, through an initial public offering, but these plans are no longer on the table, the company said. society. The sale of the biopharmacy is positive for the credit, GE retaining most of the profits from the health sector, one of its most profitable activities, said S & P in a report released Monday, now the rating BBB +. Moody's and Fitch echoed this sentiment in a separate statement.
Read more: Describe GE's historic ascent and its tortured fall
Although the sale represents a "major step" in the cleansing of GE's outdated balance sheet, it may not be enough to save the company from new rating activities, said analyst Joel Levington of Bloomberg Intelligence on Monday. . GE will release $ 20 billion from the deal to support its debt reduction goals, he said.
On the other hand, the cash purchase could jeopardize A's credit rating, attributed to Danaher, Levington said. Danaher announced Monday in a statement that he was already planning a $ 3 billion stock sale and potentially a new debt to help fund GE's business. The company is relinquishing its dental unit, which will largely absorb its debt capacity, said Levington. Moody's said Monday that Danaher's rating could be reduced by several notches.
(Updates with the Culp quote in the fourth paragraph.) An earlier version corrected the movement of the price of the obligation in the fourth paragraph.)
– With the help of Richard Clough.
To contact the reporters on this story: Molly Smith in New York at [email protected], David Westin in New York at [email protected]
To contact the editors responsible for this story: Nikolaj Gammeltoft at [email protected], Allan Lopez, Adam Cataldo
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