General Electric is soaring after announcing plans to sell its biopharma business, has gained nearly 70% since December


General Electric shares surged 15.57% to $US11.77 apiece early Monday after the company announced plans to sell its biopharma business.

The industrial giant said it has reached a definitive agreement to sell its the business to Danaher for a total consideration of $US21.4 billion, including $US21 billion in cash as well as Danaher’s assumption of certain pension liabilities.

Proceeds from the transaction will be used to reduce leverage and strengthen its balance sheet, GE said, adding that the deal is expected to close in the fourth quarter of this year.

“Today’s transaction is a pivotal milestone,” said GE CEO Lawrence Culp, Jr. in a press release.

“We are retaining full flexibility for growth and strategic optionality with one of the world’s leading healthcare companies, and we are pleased that our BioPharma colleagues will join a strong, established team at Danaher. A more focused portfolio is the right structure for GE, and we have many options for maximizing shareholder value along the way.”

GE shares were under pressure in 2018, losing more than half of their value as its power business struggled, price-cost pressures were compounded by the US-China trade war, and its LEAP engine suffered through behind-schedule deliveries.

To reorganise its business, GE in October replaced John Flannery with Larry Culp as GE’s CEO. Under the leadership of Culp, GE has been working hard to reduce debt by selling assets.

In November, GE announced it would expedite efforts to sell a $US4 billion stake in the oil-field-services provider Baker Hughes. Additionally, its finance arm, GE Capital, sold a $US1.5 billion healthcare-equipment finance portfolio to the US lender TIAA Bank.

And in December, General Electric said its digital unit would sell a majority stake in ServiceMax, a software provider, to the technology-focused private-equity firm Silver Lake.

Entering January, GE announced it revised the merger agreement between rail-transport company Wabtec and its business unit GE Transportation. Under the new agreement, GE will receive approximately $US2.9 billion of cash but gives more equity to Wabtec.

With the help of these deals, shares have gained 67% since their hitting a low of $US6.66 on December 11.

But not everyone on Wall Street has liked GE’s moves to sell assets. JPMorgan analyst Stephen Tusa recently said GE’s dash for cash is stealing value from the shareholder.

“The key aspect here, to us, is more clarity on de-leveraging around where the ‘value’ of the assets is going (to reduce debt, liabilities and GE Capital Services), and then ongoing lack of visibility on the simple maths that shows a negative run rate on enterprise FCF fully diluted for portfolio moves, from which, even assuming recovery in Power,” Tusa said.

GE was up 26% this year through Friday.

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