In a surprising move by newly appointed General Electric CEO Lawrence Culp, the company announced that it will sell its biopharma business to Danaher Corp for US$21.4 billion. The strategy came as a surprise for most given that GE had previously rejected bids for its biopharma business from Danaher Corp before. The big reversal in the company's decision-making strategies came right after Culp took over as the industrial conglomerate's chief last September.
The money that will be made from the acquisition will reportedly be used to cut the company's massive debt, which stood at US$121 billion late last year. According to sources familiar with the negotiations, GE will receive around US$20 billion in net proceeds. Stock prices for both GE and Danaher Corp increased after the news of the deal broke out to the public.
The purchase of GE's biopharma business is the latest in a long list of acquisition by Danaher Corp. The company, which earns almost half of its revenue from acquired companies, will greatly expand its presence in the healthcare industry. The acquisition will allow the company to get access to the latest research and development tools to manufacture new drugs. Following the news, shares of the company jumped to a record US$124.07 per share.
Despite trimming off almost 20 percent of its current debts, GE still has a long way to go before it can return to its former glory. The company has so far lost two-thirds of its value in the last two year. The main reason for its significant fall is due to a series of investment and operational mistakes. Some of the missteps included mismanagement and operational mistakes in its power business and piling issues within its insurance liabilities business, GE Capital.
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. The CEO explained that their strategy would be reducing leverage and ultimately strengthen the 128-year old company's bottom line. According to market analyst, the price that Danaher Corp paid for GE's Biopharma arm was actually twice what was expected. The sale could give GE a big advantage in addressing its liquidity problems.
Sources have also revealed that GE has put the initial public offering of its Biopharm business on hold until the entire deal is closed. This strategy would grant the company access to the business' earnings while negotiations are still being finalized. GE's biopharma business accounted for 15 percent of the company's healthcare revenue in 2018. GE is expected to report its 2019 outlook at an earnings call scheduled on March 14.
