GE inks US$21 billion biopharma sale to Danaher

Grant Boone
February 27, 2019

"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. Danaher was said to be paying roughly $20 billion net of tax benefits, or 17x EBITDA and 6x sales, for the unit with earnings accretion 45 to 50 cents expected in 2020.

GE jumped 18% to US$11.95 ahead of regular trading in NY yesterday.

Retaining full control of GE Healthcare will likely dim the immediate prospect of an IPO for the business, and Culp stressed that refining the overall business is key to his restructuring of the business.

The company's shares rose 10 percent in response.

Once the deal completes, the GE unit will operate as a standalone company within Danaher's life sciences business, which is already a medley of previously acquired companies.

"We view the acquisition as highly strategic, as [Danaher] gains access to GE's coveted bioprocessing assets, where GE is the leader in downstream chromatography, highly complementary to Pall's upstream dominant filtration position - not to mention GE's high margin upstream business in cell culture and single use technologies", Brennan wrote. The company divested this unit to "reduce leverage and strengthen [its] balance sheet", Lawrence Culp Jr., GE chairman and CEO, said in a press release. The transaction is expected to close in the fourth quarter of 2019, subject to regulatory approvals and customary closing conditions. Culp, however, said in January that GE would sell almost half of the unit.

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Culp was formerly CEO of Danaher, where he was instrumental in transforming the company. GE will receive cash proceeds of about $21 billion while also transferring certain pension liabilities to Danaher.

We think this is a natural fit for Danaher's existing business, and both eliminates a major competitor in this business and creates a wide moat and gap between DHR and other competitors. Such substances, or contrast agents, from GE are used in about 90 million patient procedures each year, according to the company's statement.

The company, which has been shrinking dramatically in recent years, cited changes in its portfolio and operating model.

GE halted plans to spin off its broader healthcare business as it focuses on completing the deal, CEO Larry Culp said yesterday in an interview. The biopharma unit sells instruments, consumables and software to support R&D and manufacturing for drugs. So by selling off the unit for $21 billion in capital that will be coming into GE, it also added nearly $7 billion in market to end with a $94 billion market value.

DHR stock was up 7% and GE stock was up 8% as of noon Monday. "It's unlikely we would do something here in the near to medium term", Culp said.

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