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General Electric (GE) to Divest BioPharma, Closes Wabtec Deal

Zacks Equity Research

General Electric Company GE, yesterday, has lifted market sentiments with its decision to divest the BioPharma business to Danaher Corporation DHR and use the proceeds to pay down its debts. Concurrently, the company announced that it completed the merger of its transportation business with Wabtec Corporation WAB.

Notably, shares of this industrial conglomerate have increased 6.39% yesterday, ending the trading session at $10.82.

We here discuss both the events in detail below:

Divestment of BioPharma Business to Danaher

As noted, General Electric’s BioPharma-divestment deal with Danaher has been valued at $21.4 billion. Of the full value, General Electric will receive approximately $21 billion in cash while a certain portion of its pension liabilities will be assumed by Danaher.

The BioPharma business comprises single-use technologies, process chromatography hardware and related consumables, development instrumentation and related consumables, cell culture media, and service. The business generated revenues of $3 billion in 2018.

The divestment is in sync with General Electric’s efforts to lower the debt burden and thereby, strengthen the balance sheet. Also, the divestment will help the company focus on the rest of its GE Healthcare businesses. Notably, GE Healthcare specializes in monitoring and diagnostics, imaging, and providing multiple related services and accessories. This business, excluding the impact of the divestment of the BioPharma business, generated revenues of $17 billion in 2018.

Subject to receipt of regulatory approvals and fulfillment of customary closing conditions, the divestment is anticipated to be completed in the fourth quarter of 2019.

Merger of GE Transportation With Wabtec

In addition to the BioPharma-divestment deal, General Electric yesterday has consummated the merger of GE Transportation — the provider of technology solutions for customers in railroad, marine, drilling, wind and mining industries — with Wabtec — a globally renowned manufacturer and provider of rail equipment.

With the completion of the deal, General Electric received $2.9 billion in cash and shareholding stake of 49.2% in the combined entity — of which roughly 24.3% interest will be with General Electric’s shareholders and 24.9% will be with General Electric. The rest 50.8% of the stake will be with Wabtec’s shareholders.

The transaction is considered to be a win-win situation for shareholders of General Electric and Wabtec. The combined company will have an expanded product portfolio and a larger customer base and it will focus on innovation. Further, it will have a larger installed base, with more than 23,000 locomotives. Combined revenues are anticipated to be approximately $8 billion.

General Electric’s Restructuring Plans

The above-mentioned transactions are part of General Electric’s portfolio restructuring plans.

In June 2018, the company communicated plans to transform itself into a high-tech industrial company, focused on Aviation, Power and Renewable Energy. It then decided to separate GE Healthcare and turn it to a stand-alone company while exiting oil and gas businesses by disposing of its 62.5% interest stake in Baker Hughes, a GE company BHGE. In May 2018, the company decided to merge its GE Transportation with Wabtec.

Further, the company is on track to reduce exposure to the GE Capital business as well as lessen its debt burden.

Moreover, in October 2018, General Electric announced two additions to its restructuring program. Firstly, the company slashed the dividend from 12 cents per share to a penny. The second initiative calls for reorganizing the structure of its existing Power business by splitting into two separate units. One unit will include General Electric’s Gas lifecycle business and the other will combine its Grid, Nuclear, Steam, and Power Conversion businesses. In line with this, General Electric intends to consolidate the structure of GE Power’s headquarters to ensure that these units can best serve customers.

In January 2019, the company announced its intention to combine the grid and renewable assets with Renewable Energy segment. This move will help it leverage benefit from growing demand in the renewable energy market.

Zacks Rank and Share Price Performance

General Electric currently has a market capitalization of $88.3 billion and carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

This company’s share price has increased 36.7% in the past three months compared with 9.9% growth recorded by the industry.

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Westinghouse Air Brake Technologies Corporation (WAB) : Free Stock Analysis Report
Danaher Corporation (DHR) : Free Stock Analysis Report
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