Coverage: GE to sell its biopharma business for $21 billion

General Electric Co. said on Monday it would sell its biopharma business to Danaher Corp. for $21.4 billion in the biggest strategy reversal since Lawrence Culp took over as the industrial conglomerate’s chief executive in September.

Ankit Ajmera and Manas Mishra of Reuters had the news:

GE rejected an approach by Danaher for that business a year ago. But its stance changed after Culp was appointed CEO and GE board’s became more open to a deal, according to people familiar with the negotiations who requested anonymity to discuss them.

As a result, GE will receive some $20 billion in net proceeds which it will use to trim its debt pile, which stood at $121 billion at the end of December.

Both GE’s and Danaher’s shares jumped on news of the deal, though GE still faces significant hurdles in recovering its former corporate glory. It lost two-thirds of its market value in the last two years amid a series of operational and investment missteps.

Among its challenges are mismanagement of orders and operations in its power business, and dealing with its toxic long-term care insurance liabilities in its GE Capital arm.

Richard Clough of Bloomberg News reported that the deal is the biggest for GE under Culp:

The biopharma unit, which makes equipment for manufacturing biotechnology and drug therapies, represents about $3 billion of GE Healthcare’s annual sales.

The deal announced Monday, Culp’s biggest sale so far, puts an exclamation point on his bid to pull GE out of one of the worst slumps in its 127-year history. Culp, who became chief executive after the surprise ouster of John Flannery in October, has already announced an overhaul of the ailing power-equipment business, stepped up cost cuts and revamped a divestiture of GE’s locomotive unit to increase cash potential.

“Culp is definitively turning the page on GE’s transformation, from adequacy of liquidity to power restructuring and revitalization,” said Nicholas Heymann, an analyst at William Blair & Co.

GE shares climbed 65 cents, or 6.4%, on Monday to $10.82, their highest level since Oct. 29. They have leaped 43% this year.

Michael Sheetz of CNBC.com reported that GE is now re-evaluating its plan to IPO its health care business:

An IPO for GE Healthcare this year is now in doubt, Culp said. Earlier reports incorrectly suggested the plans were off the table. Culp said GE is looking at the full spectrum of options for GE Healthcare, now that it will be without its biopharmaceutical business.

“We are focused on completing the carve out [of the biopharma business] — which is 15 percent of the $20 billion health-care segment — and focused on managing the remaining core business,” the GE chairman and CEO told CNBC’s Morgan Brennan.

“An IPO [for GE Healthcare] in 2019 looks unlikely at this point,” Culp added.

GE filed confidential paperwork for an IPO of GE Healthcare in December.

The unit is a dominant player in hospital and lab equipment, generating roughly $19 billion in revenue and $3.4 billion in profit last year. It accounted for 15.8 percent of the conglomerate’s total sales and 43.2 percent of its operating profit in 2017.