General Electric Co bonds rallied broadly on Monday after the company struck a deal to sell its biopharma business to Danaher Corp for $21.4 billion and said it would use cash from the deal to ease its massive debt burden.
The announcement sent GE shares soaring in pre-market trading Monday.
The massive all-cash deal will greatly boost Danaher's $6.5 billion life sciences unit, with the GE business expected to post $3.2 billion in revenue this year.
The announcement also further eased concerns about GE's solvency that had grown markedly past year, reflected in a surge in the price for GE credit default swaps, a form of insurance against default, during the fourth quarter.
GE has shrunk considerably since becoming entangled in the financial crisis a decade ago and is seeking to divest even more of its businesses.
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"Today's transaction is a pivotal milestone", Culp said in a statement published by CNN Business.
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. The sale could give GE a big advantage in addressing its liquidity problems.
The bio-pharma unit, which makes equipment for manufacturing biotechnology and drug therapies, represents about $3 billion of GE Healthcare's annual sales.
The broader Danaher Corporation is composed of more than 20 operating companies in four business units: diagnostics, dental, life sciences, and environmental and applied solutions.
Culp told Bloomberg the company was shelving a plan for a public offering, at least for now with the Danaher deal.
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That's a sharp turnabout from GE's plight at the end of 2018, as a two-year stock collapse wiped out more than $200 billion in shareholder value.
Janney's note further said that Danaher seems to have struck a good value with the GE LS acquisition priced 17x EBITDA. The company's shares have risen about 34 percent since the beginning of the year, but are still down nearly 30 percent from a year ago.
"We're going to focus on improving our core imaging business while we evaluate other options". "So folks don't look at us like a desperate seller", he said. The health-care business was one of GE's better cash-generating assets and, one way or another, it likely will be gone eventually. In 2018, it acquired Integrated DNA Technologies, which makes products for gene-sequencing and editing for $2 billion.
GE's decision to sell GE BioPharma to its CEO's old company may raise eyebrows among investors. Crucially, GE said that Danaher agreed to assume the pension obligations as part of the deal.
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