GE jumped 18% to US$11.95 ahead of regular trading in NY yesterday.
The business, which makes equipment for researching, developing and manufacturing biopharmaceuticals and had revenues of around $3 billion a year ago, will now operate as a separate division within Danaher's $6.5 billion life sciences division after the closure of the deal. At the time, GE Chief Financial Officer Jamie Miller said GE had been attracting interest on some of its business units but was "looking to do deals that are smart for the company". GE was the second-best performing stock in the S&P 500 Monday on the news, behind Danaher.
The transaction is the first big play by new GE CEO Lawrence Culp in a turnaround plan aimed at alleviating the conglomerate's crippling level of debt, and a run of poor quarterly results held back by its troubled power division. GE's pharmaceutical imaging agents are used in approximately 90 million patient procedures each year. 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. GE's biopharma business accounted for 15 percent of the company's healthcare revenue in 2018.
"'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. Shares of Danaher were up more than 9 percent.
Pharmaceutical Diagnostics, now part of GE Life Sciences, will remain within the GE Healthcare portfolio. GE completed the transportation deal Monday as it merged the locomotive unit with Wabtec Corp.
Janney's note further said that Danaher seems to have struck a good value with the GE LS acquisition priced 17x EBITDA.
"We have too much debt", Culp said.
"We're going to focus on improving our core imaging business while we evaluate other options".
GE also announced several upcoming events, including the release of its 10-K annual report this week and a presentation by Culp at a JPMorgan Chase & Co. conference March 5. The company also reported, though, that cash flow from operations was down 8.6% year over year, to about $6.4 billion. They say Danaher will acquire the division that makes testing equipment for biopharmaceutical products.
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.
Then, with $21 billion worth of new cash in hand, GE can set about using "the proceeds from the transaction to reduce leverage and strengthen its balance sheet".