GE continues to downsize: Firm selling biopharma division for $21.4 billion

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General Electric Co. agreed to sell its bio-pharma business to Danaher Corp. for total consideration of US$21.4 billion in a major boost for the troubled conglomerate's turnaround. With GE BioPharma having produced $3 billion in 2018 revenues, the valuation of this deal, at a hair over 7 times sales, looks like great news for GE, whose own stock commands a valuation of less than 0.8 times sales.

GE jumped 18% to US$11.95 ahead of regular trading in NY yesterday.

In an announcement made to the media, Culp mentioned that the sale is pivotal to the company's planned return and a milestone in its revitalization efforts.

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Under the previously disclosed terms of the transaction, GE distributed all 8.7 billion shares of common stock of Transportation Systems Holdings Inc with respect to the shares of GE common stock outstanding as of the close of business on 17 February 2019 by means of a pro rata distribution, and SpinCo and a subsidiary of Wabtec then merged.

Pharmaceutical Diagnostics, now part of GE Life Sciences, will remain within the GE Healthcare portfolio. Such substances, or contrast agents, from GE are used in about 90 million patient procedures each year, according to the company's statement. The verdict is not universal that Danaher stole the company, but the reports all had something positive to say about the deal. After being named as the new CEO last fall, Larry Culp said GE needed to simplify its business structure even more.

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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Janney's note further said that Danaher seems to have struck a good value with the GE LS acquisition priced 17x EBITDA.

GE said this month that it would downsize its world headquarters in Boston and return $87 million in incentives it received from MA for moving from CT three years ago. "To do this, we are improving execution, customer focus, and how we set priorities across GE". The deal is expected to close in the fourth quarter of 2019 and we see limited regulatory risk. Meanwhile, GE keeps a large proportion of its health assets including the profitable imaging and diagnostics business, which is an important contributor to cash flow. "It lost two-thirds of its market value in the last two years amid a series of operational and investment missteps".

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

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