General Electric Company (GE) said on Monday that it had agreed to sell its BioPharma business to Danaher Corporation for a total amount of $21.4 billion, including $21 billion in cash and the assumption of GE's certain pension liabilities. 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. The company also points out that the net price of the deal will be $20 billion after taking into account for tax benefits.
GE jumped 18% to US$11.95 ahead of regular trading in NY yesterday.
"Today's transaction is a pivotal milestone", Culp said in a statement published by CNN Business. The company's shares have risen about 34 percent since the beginning of the year, but are still down nearly 30 percent from a year ago.
GE will sell the division to Danaher for $21.4 billion, the companies announced.
Pharmaceutical Diagnostics, now part of GE Life Sciences, will remain within the GE Healthcare portfolio.
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When Larry Culp took command of flailing General Electric Co. late past year, his mandate was simple: be more aggressive.
Culp told Bloomberg the company was shelving a plan for a public offering, at least for now with the Danaher deal.
As Reuters reports, the deal "will provide GE with a much-needed cash infusion as [it] struggles to pay off" more than $100 billion in debt amid stagnating growth. At the end of a year ago, the company's interest-bearing liabilities had ballooned to 110 billion dollars. The company divested this unit to "reduce leverage and strengthen [its] balance sheet", Lawrence Culp Jr., GE chairman and CEO, said in a press release.
Another analyst, Dan Brennan of the investment bank UBS, said it "looks like a great fit" for Danaher, particularly given how it fits with a previous acquisition of Pall, he wrote in a February 25 note to investors.
The bulk of the deal's financing will come from Danaher's available cash and proceeds from the issuance of debt or new credit facilities. Washington, D.C. -based Danaher is the company Culp ran for about 13 years prior to joining GE. According to market analyst, the price that Danaher Corp paid for GE's Biopharma arm was actually twice what was expected. "To do this, we are improving execution, customer focus, and how we set priorities across GE". Where things get interesting is that Danaher was worth about $80 billion prior to the merger announcement. "It lost two-thirds of its market value in the last two years amid a series of operational and investment missteps".