(Reuters) – Shares of General Electric Co surged 15 percent on Monday after the industrial conglomerate said it would sell its biopharma business to Danaher Corp for $21.4 billion, its first major asset sale under new Chief Executive Officer Larry Culp.
FILE PHOTO: The General Electric logo is pictured on working helmets during a visit at the General Electric offshore wind turbine plant in Montoir-de-Bretagne, near Saint-Nazaire, western France, November 21, 2016. REUTERS/Stephane Mahe/File Photo
The deal will provide GE with a much-needed cash infusion as the maker of power plants and aircraft engines struggles to pay off billions of dollars of debt and insurance liabilities.
The company, once a symbol of American business power and management prowess, has struggled with crisis-era losses linked to its finance arm, forcing it to divest its non-core businesses and return to its industrial roots.
Culp said the sale to Danaher, where he was CEO for more than a decade and instrumental in revitalizing the company, was a pivotal milestone in efforts to turn around the 126-year old conglomerate.
“(Larry Culp) has earned his stripes. It is clear that nobody in his job before him – John Flannery or Jeff Immelt – would have probably been able to pull off this transaction with Danaher,” William Blair & Co analyst Nicholas Heymann said.
“And the price Danaher is paying GE is two times our expectations. This is a home run. It really turns the page now for GE to address liquidity concerns,” Heymann adds.
Shares of GE, which has a debt of more than $100 billion, have fallen more than 80 percent from their peak in August 2000. But Culp’s appointment last year rekindled hopes of GE’s return to profitability, with its shares up 35 percent this year.
“It demonstrates that we are executing on our strategy by taking thoughtful and deliberate action to reduce leverage and strengthen our balance sheet,” Culp said in a statement.
Until recently, the company had plans to spin off the entire healthcare unit. Culp, however, said in January GE would sell nearly half of the unit.
Sources familiar with the matter told Reuters on Monday that GE will put the initial public offering of the unit on hold until the deal with Danaher closes, expected in the second half of the year.
The biopharma business accounted for 15 percent of GE’s healthcare business revenue in 2018. It makes instruments and software that support the research and development of drugs.
The sale leaves GE’s healthcare unit with its medical device unit, which makes X-ray, CT scan and MRI machines, and its pharmaceuticals diagnostic unit.
Danaher develops technology for the dental, life sciences, diagnostics and environmental industries.
GE, which reported lower-than-expected fourth-quarter profit in January, said it would provide its 2019 outlook on a conference call on March 14.
Reporting by Ankit Ajmera and additional reporting by Rachit Vats in Bengaluru; Editing by Saumyadeb Chakrabarty