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CHESTO MEANS BUSINESS

GE chief moves fast with a $21b divestiture

The deal to sell the BioPharma business should calm fears that GE will be forced to unload assets at fire-sale prices.
The deal to sell the BioPharma business should calm fears that GE will be forced to unload assets at fire-sale prices. CJ GUNTHER/EPA-EFE/REX/Shutterstock/File 2017/EPA-EFE/REX/Shutterstock

GE’s previous chief executive, John Flannery, took the better part of a year to roll out $20 billion worth of divestitures. Larry Culp essentially just did the same thing in one swoop.

It’s hard to overstate the importance of General Electric’s $21 billion sale of its BioPharma business, which Culp unveiled on Monday. This is one of the biggest deals in Boston-based GE’s history. It will bring in a welcome chunk of cash for an industrial conglomerate that’s struggling with a mountain of debt (plus some unresolved government investigations). And its rapid execution shows the kind of decisiveness that Wall Street needs to believe in the new CEO’s turnaround story.

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Culp had a bit of an advantage going into this negotiation. The acquirer, after all, is Washington-based Danaher Corp., the company that Culp led for years. Danaher had apparently already expressed an interest in GE’s life sciences business when Flannery ran GE. And Culp, of course, knew the players on the other side of the table, led by Danaher CEO Thomas Joyce, one of his former lieutenants.

The $21 billion figure sure sounds like a nice price, the equivalent of seven times BioPharma’s annual revenue. (The business provides tools, equipment, and software to drug companies.) Nick Heymann, a William Blair & Co. analyst, had pegged the group’s value at $10 billion to $12 billion. The deal that Danaher offered, Heymann says, was something no one at GE could refuse.

Morningstar analyst Joshua Aguilar pointed to another crucial takeaway. The Danaher deal should calm GE investors’ fears that Culp would be forced to sell prized assets at fire-sale prices, a typical problem for a company under duress. No whiff of desperation here.

Shareholders often punish an acquirer after a major purchase is announced. Not this time: Danaher shares soared 8.5 percent on Monday. Maybe that’s because the deal would significantly add to Danaher’s profits in the first year after it closes. GE investors also seemed enthused, though GE’s stock dropped a bit from its morning high to close the day up 6.4 percent. (It apparently takes a lot to excite that understandably wary bunch.)

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It’s unclear how the news will play out in Marlborough, home to the US headquarters of GE’s life sciences business. (About 700 people worked for GE Healthcare’s life sciences division in Marlborough and Westborough as of last June.) Most of that business is going to Danaher in the BioPharma deal, though a piece focused on pharmaceutical diagnostics stays behind with the rest of GE Healthcare.

This sale to Danaher represents a detour, of sorts. The entire GE Healthcare enterprise was supposed to be divested through a massive initial public offering this year. GE has put that IPO on hold for now, to focus on completing the sale of the BioPharma piece by the end of the year.

Aside from putting the IPO on the shelf, Culp is proceeding with the various divestitures that Flannery put in motion. The merger of GE’s train business with Wabtec, for example, was completed on Monday, as well. It sure is a busy time at GE headquarters.

An ugly write-down in GE’s troubled Power division probably cost Flannery his job; his departure and the big Power charge (eventually tallied at $22 billion) were announced at the same time on Oct. 1. But Flannery’s much-touted presentation to shareholders in November 2017, just over three months after he became CEO, was also considered to be a big disappointment. Investors and analysts went to a Manhattan meeting hoping to hear major elements of Flannery’s divestiture plan, following a deep dive that he took to examine all of GE’s operations. They left with many questions unanswered.

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Flannery may have thought he had the luxury of time. Culp just showed investors that he holds no such misconception.


Jon Chesto can be reached at jon.chesto@globe.com.