By Thomas Gryta
General Electric Co. agreed to sell its biotechnology business to Danaher Corp. for $21 billion in cash, moving to pay down debt by parting with one of its fastest-growing businesses.
The move is a strategic shift by GE's Larry Culp, who took over as chief executive officer in October and had previously been CEO of Danaher, a life-sciences conglomerate. Until recently, Mr. Culp and GE had pledged to spin off GE's entire health-care business in an initial public offering later this year. GE's battered shares surged 18% on the deal news.
"This gets us a little closer to a place where we aren't spending so much of our agenda tending to the balance sheet," Mr. Culp said in an interview Monday. "We get to have a different conversation with the health-care team."
GE now plans to focus on separating the biotech business and closing the Danaher deal this year, Mr. Culp said, and re-evaluating the plans for an IPO of the rest of its health-care division, which primarily makes MRI machines and hospital equipment.
The GE biotech business sells supplies and equipment for developing and producing biologic drugs, which are made using living cells. It accounted for about $3 billion of GE Healthcare's $20 billion in revenue last year.
Danaher, a serial deal maker, had approached GE early last year about buying the life-sciences part of GE Healthcare, The Wall Street Journal has reported. GE wasn't interested, but Danaher had recently expressed renewed interest in a deal, the Journal later reported. People familiar with the matter had said the business could be worth around $20 billion.
On Monday, GE said it expects the deal to close in the fourth quarter and accelerate its efforts to reduce the company's more than $100 billion in debt. Danaher will pay cash and assume some of GE's pension liabilities.
GE has struggled in the past two years with slumping profits in its core power business and losses in its GE Capital unit, prompting the company to change CEOs and set plans to focus on its aviation and power divisions.
To pay down debt, GE had pledged to raise some $30 billion from asset sales, including closing the sale of its transportation division to Wabtec Corp., selling down its ownership stake in oil-field services firm Baker Hughes and planning to sell about half of the entire health-care division in an IPO.
Mr. Culp said the biotech business, while promising, wasn't core to GE's health-care division. He said the $21 billion in proceeds moves us a "long way down the field" toward fixing GE's balance sheet.
Mr. Culp said the biotech business generated "multiple inbound calls" and the company evaluated those options against sticking with the IPO plans. GE will continue to look at all options, he said, but the deal with Danaher allows GE to "keep 85% of health care a little bit longer."
The deal will allow GE to "play a little more offense" in restructuring itself and as it considers other moves, he added. "So folks don't look at us like a desperate seller," he said. "We are on better footing."
The biotech business that GE is selling is expected to have about $3.2 billion in revenue this year. Danaher is paying about 17 times its expected earnings before interest taxes and depreciation.
Shares of GE jumped about 18% to $11.99 in premarket trading, while Danaher gained about 7% to $121. While GE is a much larger company in terms of revenue and employees, GE's share-price collapse over the past two years has left both companies with similar market valuations. Before Monday's trading, GE's market value was about $88 billion, while Danaher's was $80 billion.
The deal with Danaher unites Mr. Culp with his former employer. He ran the Washington, D.C.-based company for 14 years and used a series of acquisitions to boost its revenue from about $4 billion in 2001 to $20 billion when he retired in 2015.
After he left, Danaher slimmed down to focus on filtration and blood diagnostics, as well as scientific instruments. In 2015, it paid $13.6 billion for Pall Corp., another life-sciences company; a year later, it spun off its industrials businesses into a separate public company called Fortive Corp.
The company that became Danaher started as a real-estate investment trust in 1969 by brothers Mitchell and Steven Rales. The Rales brothers, now billionaires, both remain on the board of Danaher and major shareholders. The deal with GE would be Danaher's biggest.
Danaher said it plans to raise about $3 billion in an equity offering to help fund the deal. It will also issue debt or new credit facilities to fund the rest of the purchase. Danaher has less than $1 billion in cash and had about $9.69 billion of long-term debt at the end of 2018.
--Dana Mattioli contributed to this article.
Write to Thomas Gryta at email@example.com