Wall Street was elated to learn yesterday that General Electric -- which was delisted from the Dow Jones industrial average last year after a 110-year run -- is selling its BioPharma subsidiary to Danaher Corp. for $21.4 billion. GE shares were up 6.39% at the market close, after spiking as much as 13% during the day. Danaher’s stock was up 8.52%.
"The BioPharma unit, part of GE Life Sciences, makes instruments and software that support the research and development of pharmaceuticals. It brought in $3 billion in revenue last year. GE promised to use the proceeds to cut down its mountain of debt. Crucially, GE said that Danaher agreed to assume pension obligations as part of the deal,” Matt Egan reports for CNN Business.
“Known for decades as a titan of American business, GE has struggled in recent years with a bevy of problems. Under a succession of leaders, the company has announced the sale or spinoff of enormous divisions, whittling down operations like finance and energy,” Michael J. de la Merced reminds us in the New York Times.
Reuters’ Ankit Ajmera and Manas Mishra call the deal “the biggest strategy reversal since Lawrence Culp took over” as GE CEO last fall after abruptly firing John Flannery. Culp, you may recall, had been CEO and president of Danaher from 2000 to 2014.
“Culp was credited for having led a turnaround at Danaher. Whether he can turn around GE in the same fashion remains to be seen,” Ralph W. Baker, Jr. (writing as Shock Exchange) observes for Seeking Alpha. But, he continues, “ I believe the deal is a masterstroke …”
“GE rejected an approach by Danaher for that business a year ago. But its stance changed after Culp was appointed CEO and GE’s board became more open to a deal, according to people familiar with the negotiations who requested anonymity to discuss them,” Reuters’ Ajmera and Mishra write.
But, as they point out, “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.”
“Since taking over as CEO in October, [Culp] had kept GE on track for a spinoff of its entire health-care business in an initial public offering later this year,” writes the Wall Street Journal’s Thomas Gryta.
“The biotech deal gives GE funds to fix its balance sheet and will allow the company to ‘play a little more offense’ in restructuring itself, [Culp] said in an interview Monday. ‘So folks don’t look at us like a desperate seller,’ he said. ‘We are on better footing.’”
“He said management now plans to focus on closing the biotech sale to Danaher this year, while re-evaluating plans for an IPO of the rest of the health-care division, which primarily makes MRI machines and hospital equipment,” Gryta adds.
GE’s biopharma business has annual revenues of about $3 billion, about two-thirds of the total sales of the life sciences operations,” Ed Crooks and Eric Platt write for Financial Times. “GE will retain its other main life sciences business, pharmaceutical diagnostics, which it sees as a better fit with its medical equipment such as scanners.”
“Danaher Corporation already has a foot in the bioprocess space through its $13.8 billion acquisition of Pall Corporation in 2015,” Dan Stanton writes for BioProcess International.
“‘The business will be established as a stand-alone operating company within Danaher’s $6.5 billion Life Sciences segment so no integration with Pall,’ a spokesperson told us, adding ‘the businesses are very complementary, so no divestitures expected,’” Stanton continues.
“If the deal closes as expected, the big end of the bioprocessing industry will become slightly more consolidated, with Danaher controlling both GE and Pall, competing against Thermo Fisher, Sartorius and MilliporeSigma,” Stanton concludes.
“Rarely do we see both the acquirer and the seller’s stocks react so positively on a deal announcement. This stock reaction underscores the win-win nature of the deal,” Deane Dray, an analyst at RBC Capital Markets, tells the Los Angeles Times’ Richard Clough.
“But you still have to wonder what GE is going to look like once Culp is finished and what its growth story will be. The health-care business was one of GE’s better cash-generating assets and, one way or another, it likely will be gone eventually. GE risks following the path of fallen industrial giants before it like Tyco International or Westinghouse and breaking itself up until it’s a shadow of its former self,” Brooke Sutherland writes for Bloomberg.
As for the impact of the deal on patient care, we'll have to wait and see.