GE Selling Biopharma Unit in $21.4 Billion Deal

General Electric’s (GE’s) sale of its biopharma unit on February 25 is designed to reduce the company’s overall debt load, and CEO Larry Culp said the deal is the latest step in his plan to strengthen the whole of GE, particularly the company’s struggling Power division.

GE on Monday agreed to sell the biopharma part of its life sciences business to Danaher Corp. for $21.4 billion. Washington, D.C.-based Danaher is the company Culp ran for about 13 years prior to joining GE.

Sale Strengthens Balance Sheet

“This news meaningfully accelerates our deleveraging plan,” Culp told Bloomberg after the deal was announced. “You can see the tide beginning to turn where we can really focus on a little less defense, a little more offense.” GE in November said it would reorganize GE Power into two businesses and consolidate the unit’s headquarters.

Shares in GE surged Monday, rising almost 9% to their highest level since October 2018. Culp, who took over as CEO on October 1 of last year, replacing John Flannery, in January said GE’s strategy moving forward “is clear: de-leverage our balance sheet and strengthen our businesses, starting with Power. To do this, we are improving execution, customer focus, and how we set priorities across GE.”

“GE Biopharma is renowned for providing best-in-class bioprocessing technologies and solutions,” said Danaher CEO Tom Joyce after Monday’s agreement. “This acquisition will bring a talented and passionate team as well as a highly innovative, industry-leading product suite to our Life Sciences portfolio, providing an excellent complement to our current biologics workflow solutions.”

No Healthcare IPO

The biopharmaceutical business makes up most of GE’s life-sciences operations. Culp said Monday’s sale means GE will scrub, at least for now, plans for an initial public offering of stock for its healthcare division. Culp is trying to pull GE out of a two-year tailspin that saw stock losses wipe out more than $200 billion shareholder value.

The biopharma unit makes equipment for manufacturing biotechnology and drug therapies. It has represented about $3 billion of GE Healthcare’s annual sales. The deal is expected to close by year-end and is not subject to a financing condition or a shareholder vote, GE said in a statement. GE will receive cash proceeds of about $21 billion and also transfer certain pension liabilities to Danaher.

Analysts on Monday said Culp clearly is focused on raising cash and reducing GE’s debt. The company in its January earnings report said it was able to retain or generate about $10 billion in cash in the last quarter of 2018 as it cut its dividend to a penny, and sold part of its stake in oil services group Baker Hughes. The company also reported, though, that cash flow from operations was down 8.6% year over year, to about $6.4 billion.

Power Unit a Drag on Cash Flow and Earnings

GE also said that weakness in the GE Power unit meant it would miss its 2018 free cash flow and earnings guidance target, with the company taking a $23 billion goodwill charge to the Power division.

Culp at the time said, “I’m confident in our team, technology, and the global reach of GE’s brand and relationships. We have more work to do, but I’m encouraged by the changes we’re making to strengthen GE and create value for our shareholders, customers, and employees.”

The Wall Street Journal earlier this month reported GE has a $92 billion backlog in orders for the Power division, some of them stemming from the company’s purchase of France’s Alstom in 2015. Culp said many of those orders were from companies GE has acquired, or taken by GE salespeople as the company tried to capture market share in a competitive landscape for power generation products and services.

French labor unions in January said GE was cutting 468 jobs at its units in France, including some Alstom staff.

Darrell Proctor is a POWER associate editor (@DarrellProctor1, @POWERmagazine).