Shares of General Electric (GE) have surged more than 15% after the industrial conglomerate said it would sell its biopharma business to Danaher for $21.4bn (€18.9bn), its first major asset sale under new chief executive Larry Culp.
The deal will provide GE with a much-needed cash infusion as the maker of power plants and aircraft engines struggles to pay off billions of dollars of debt and insurance liabilities.
The company, once a symbol of American business power and management prowess, has struggled with crisis-era losses linked to its finance arm, forcing it to divest its non-core businesses and return to its industrial roots.
While divestitures have given the company funds to rebuild itself, its more than $100bn debt and stagnating growth have left investors and Wall Street analysts concerned about its prospects.
However, Culp’s appointment in October rekindled hopes of GE’s return to profitability, with its shares up 34% this year.
Culp said the sale to Danaher, where he was instrumental in revitalising the company as its CEO, was a pivotal milestone in efforts to turn around the 126-year old conglomerate.
“It demonstrates that we are executing on our strategy by taking thoughtful and deliberate action to reduce leverage and strengthen our balance sheet,” Culp said.
The biopharma sale also propelled a broad rally in GE’s roughly $120bn of bonds, which had taken a pounding in late 2018 as it became clear that earlier restructuring efforts were falling short and that the company would need to take more aggressive action to address its debt load in particular.
“[Larry Culp] has earned his stripes. It is clear that nobody in his job before him, John Flannery or Jeff Immelt, would have probably been able to pull off this transaction with Danaher,” William Blair & Co analyst Nicholas Heymann said.
“And the price Danaher is paying GE is two times our expectations.
“This is a home run. It really turns the page now for GE to address liquidity concerns,” said Heymann.
Until recently, the company had plans to spin off the entire healthcare unit.
However, Culp said in January that GE would sell nearly half of the unit.
Sources said that GE will put the initial public offering of the unit on hold until the deal with Danaher closes, expected in the second half of the year.