GE announced on Monday that it is selling its business to Danaher Corp for $21.4 billion. That is being seen as the biggest U-turn in terms of strategy in the industry since the appointment of Lawrence Culp as the CEO in September. What is interesting to know is that GE had rejected the Danaher offer last year of purchasing the business but changed its approach after Culp was appointed as the CEO. As per sources who are aware of the negotiations the General Electric board opened up to the deal after his appointment which now results in a $20 billion net proceeds for the company which it will use to reduce its debt which was at $121 billion in December 2018.
The announcement of a deal leads to shares of both GE and Danaher increase in the market though GE is yet to reach its earlier market value which it lost due to improper operational management and investment goof-ups. In the last few years, GE has lost close to two-thirds of the market value.
Culp in a statement on Monday that the deal he was instrumental in getting it through will be an important milestone for the company and one which would help to turn-around the 126-year old company. He said ‘It demonstrates that we are executing on our strategy by taking thoughtful and deliberate action to reduce leverage and strengthen our balance sheet.’ The sale of its biopharma unit helped rally the $120 billion of bonds which had fallen sharply in 2018 as it became apparent that the efforts on restructuring the company were not effective and to reduce the debt there was a need to be more aggressive. An analyst at William Blair & Co Nicholas Heymann was all praise to the new CEO and said that Culp ‘ had 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. And the price Danaher is paying GE is two times our expectations. It really turns the page now for GE to address liquidity concerns’.
Some sources familiar said that GE is likely to put the IPO of the unit on hold till the deal with Danaher is closed which is expected to happen in the second half of the year. That means some of the cash crunches can be addressed as GE will have access to the health care business cash flows and earnings for a longer period.