Has General Electric officially taken the turning point? – The crazy fool

If you were concerned about where General Electric (NYSE: GE) was heading, you were not alone. Many well-known analysts, commentators and stock market analysts are anxiously watching the struggling industrial conglomerate and its new CEO, Larry Culp, for signs that the woes of the company are behind him.

Monday came the moment everybody was waiting for, while Culp announced a surprise plan to sell the company's biopharmacy business to his former company. Danaher (NYSE: DHR). Stocks soared after the announcement of the deal, but the company's press release contained other hidden gems that should give investors more confidence in the fact that GE could finally ( finally) stabilize.

What's the problem

In June 2018, former President and CEO John Flannery announced that GE would be moving away from GE Healthcare, its well-managed healthcare unit. This was a double-edged sword for investors as GE Healthcare had some of the best margins of any unit in the company. Only exceptional companies from GE Aviation were higher. The split of the latter meant that these margins – not to mention the assets of the unit – would be permanently lost.

But GE planned to charge the health care unit pension liabilities and liabilities prior to the split, which would strengthen its financial position as these items went off the balance sheet. In addition, now that GE has cleared (or announced its intention to do so) of its appliances, consumer lighting and oil and gas units, Healthcare is no longer what the rest of the company was: to make turbines of various types.

On Monday however, these plans were turned upside down. GE will now sell its BioPharma unit, which manufactures the hardware and software necessary for companies to research, develop and manufacture biopharmaceutical drugs, which, to be honest, is really great. The unit generates about $ 3 billion in annual revenue (about 15% of GE Healthcare's total), leaving much of GE Healthcare untouched by the deal.

Why it's a big deal

The buyer is Danaher, another industrial conglomerate, led by Culp from 2001 to 2014. Since its departure, Danaher has reinvented itself by creating or selling some of its industrial activities and by buying biotech companies. For example, in 2016, Danaher sold some 20 of its businesses, including measuring instruments and automotive equipment. Fortive, in the acquisition of molecular diagnostics company Cepheid, Inc. In 2018, it announced the acquisition of Integrated DNA Technologies. GE's BioPharma division should therefore feel comfortable with its new parent.

For its part, GE has a $ 21 billion cash flow that it will use to reduce its net debt by $ 110 billion. Danaher will also acquire pension liabilities of $ 400 million, which will also contribute to GE's balance sheet. And at a selling price of just over 7 times the annual income, there is no doubt that the price is correct. This dispels some concerns that GE would have to resort to fire-based pricing when unloading its assets.

And GE still retains the rest of its outperforming health care unit, which it can then split as planned, sell by piece or hang on to it. Despite some initial information stating that the spin-offs were definitely off the table, Culp explained to CNBC that she was simply reassessed, but that an "IPO in 2019 seemed unlikely at this point."

The agreement is therefore important for both companies, but in the press release announcing it, GE also addressed two other important investor concerns about GE: planning and transparency.

An even bigger business

Until now, Culp was reluctant to provide details on what he had in mind for GE's future, beyond global statements such as the need to "strengthen activities, to start by [GE’s troubled unit] Power "and the need for society to reduce its debt.

In general, Culp was less open than his predecessor, Flannery, who at this stage of his tenure had already chaired some fruitless conference calls and who – with CFO Jamie Miller – had made presentations at several industry conferences. .

But in the press release announcing the deal, GE also announced that Culp would make a presentation in just over a week at the JP Morgan Aviation Conference, Transportation & Industrials on March 5, its first appearance as CEO. J.P. Morgan's analyst, Steve Tusa, has been one of GE's most vocal spokespersons and is expected to lead the Q & A session with Culp. This seems to be a big step forward in the company's willingness to answer difficult questions.

In addition, GE scheduled a "Teach-in" teleconference on March 7 to address the company's insurance situation, which has caused so much headache over the past year. She then plans to publish the company's outlook at a teleconference on March 14th. Five days later, CFO Miller will make his first presentation during Culp's tenure at Bank of America Merrill Lynch Global Industrials and EU Autos.

After three months of almost total silence on the radio, this flood of information and interactions seems to indicate that society has heard the critics and is determined to tackle them head on.

Turn the corner

The most troubling thing in the four months following Flannery's strong ouster and Culp's climb to C-suite was what appeared to be the absence of a concrete plan going to the Beyond what Flannery had shared in June 2018. Although this agreement with BioPharma is important, investors should pay more attention to all the information that the company will share until mid-March and see if they are approved. Remember, it is still entirely possible that this agreement be announced before the catastrophic outlook of 2019. So it may be premature to say that GE has definitely turned the page.

Two weeks ago, after GE's fourth quarter earnings report, I wrote, "Maybe Culp is going to get the rabbit out of his hat and surprise everyone with a strategic master shot" . At the time, I felt that the prospect was unlikely, but even this GE teddy must admit that Monday's revelations should go a long way in improving GE investor confidence in and towards the company.