The biopharmaceutical division has been performing well, accounting for about $3 billion of the $20 billion in revenue that G.E.'s health care unit generated past year as a whole. The company also points out that the net price of the deal will be $20 billion after taking into account for tax benefits.
Under the previously disclosed terms of the transaction, GE distributed all 8.7 billion shares of common stock of Transportation Systems Holdings Inc with respect to the shares of GE common stock outstanding as of the close of business on 17 February 2019 by means of a pro rata distribution, and SpinCo and a subsidiary of Wabtec then merged.
GE will sell the division to Danaher for $21.4 billion, the companies announced.
Culp told CNBC that GE made a decision to break up the Life Sciences unit as the biopharma business is distinct from the pharmaceutical diagnostics business. Such substances, or contrast agents, from GE are used in about 90 million patient procedures each year, according to the company's statement. It will continue to operating as a stand-alone company once the deal is complete. When the deal with Danaher closes, GE Biopharma will become part of that company's own Life Sciences division.
Then, with $21 billion worth of new cash in hand, GE can set about using "the proceeds from the transaction to reduce leverage and strengthen its balance sheet".
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GE CEO H. Lawrence Culp Jr. had positioned the company to spin off its health care unit later this year.
"GE rejected an approach by Danaher for that business a year ago". Danaher has already commenced concurrent securities offerings of $1.35 billion of shares of common stock and $1.35 billion of shares of Series A Mandatory Convertible Preferred Stock, but these may be allowed to grow with overallotment options.
Janney's note further said that Danaher seems to have struck a good value with the GE LS acquisition priced 17x EBITDA.
It's expected to close sometime in the fourth quarter, with any IPO for the remaining health assets not likely to occur until afterwards. In 2016, for instance, it bought the molecular diagnostics and medical testing business Cepheid for about $4 billion.
We think this is a natural fit for Danaher's existing business, and both eliminates a major competitor in this business and creates a wide moat and gap between DHR and other competitors.
Sources have also revealed that GE has put the initial public offering of its Biopharm business on hold until the entire deal is closed. "So folks don't look at us like a desperate seller", he said.