GE reevaluating plans for Healthcare IPO after Danaher deal

Phillip Cunningham
February 28, 2019

Boston-based GE said Monday that it would sell the segment to Washington-based conglomerate Danaher Corp. for $21.4 billion, which includes $21 billion in cash and an assumption by Danaher of 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 deal is expected to close in the fourth quarter of 2019 and we see limited regulatory risk.

GE is considerably smaller now than it was before becoming entangled in the financial crisis a decade ago and wants to divest even more of its businesses.

Shares in GE surged Monday, rising nearly 9% to their highest level since October 2018.

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.

UBS's Peter Lennox-King reiterated a Buy rating and raised his price target by $1 to $13, writing that post-deal, GE will have assets well beyond the $30 billion in industrial debt reduction the company was aiming for, and that breathing room should allow the market to shift its focus back to fundamentals for what will be a smaller, more-focused company.

The bio-pharma sale, Culp's biggest so far, puts an exclamation point on his bid to pull GE out of one of the worst slumps in its 127-year history.

GE will shelve plans for the initial public offering as it turns its attention to completing the deal with Danaher, Culp said.

Pharmaceutical Diagnostics, now part of GE Life Sciences, will remain within the GE Healthcare portfolio.

As noted in our GE Topic notes late previous year, the Life Science assets at General Electric were elite businesses within the Bio-Production and Life Science Markets and worth about $25 billion.

"Sale of biopharma a positive", Credit Suisse said in a note. "To do this, we are improving execution, customer focus, and how we set priorities across GE". In 2016, for instance, it bought the molecular diagnostics and medical testing business Cepheid for about $4 billion.

Additionally, GE announced plans to provide shareholders with its 2019 forecast on March 14. They say Danaher will acquire the division that makes testing equipment for biopharmaceutical products. "It's unlikely we would do something here in the near to medium term", Culp said.

The GE deal would be Danaher's biggest takeover by a wide margin, however, and should fundamentally reshape its business and make it a major provider of technology and tools to biotechnology and drug companies. Under the new agreement, GE will receive approximately $2.9 billion of cash but gives more equity to Wabtec.

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