Can Danaher Walk Away From the Buyout of GE’s Biopharma Unit?

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If there is one former Dow Jones industrial average leader that is in need of serious help, look no further than General Electric Co. (NYSE: GE). A new CEO has been making headway to get the conglomerate more focused on core areas of operation, and that includes asset sales and perhaps even spin-offs down the road.

GE previously announced the sale of its biopharma unit to Danaher Corp. (NYSE: DHR). The $95 billion diagnostic and research company’s acquisition of GE’s biopharma unit was set for more than $20 billion. This was going to allow GE to be more focused, and it was going to bring in added cash that GE could then use to pay down debt.

According to John Inch, an analyst at the firm Gordon Haskett, the $21 billion or more unit sale may be in jeopardy. Sadly, this might not even be GE’s fault this time around, but that would not prevent it from being GE’s problem.

At issue is that life-sciences equipment maker Agilent Technologies Inc. (NYSE: A) and Waters Corp. (NYSE: WAT) both slid hard after earnings. Both companies talked up a more difficult selling environment, and both seem to be having problems internationally.

Inch pointed out that the deterioration in life sciences equipment markets could be adding risks that this deal could mean it is canceled or renegotiated. While Inch believes that GE would choose to renegotiate the terms of the deal with Danaher, it is a possibility that the terms might be lower by enough that the sale is no longer as attractive to build GE’s cash so it can pay down more debt and decrease its debt leverage.

Before panicking here, note that it may still be far too soon to think that weakness in competitors’ businesses would be a material change in the business. Acquirers often take on business risks when they are making acquisitions, but this would not be the first time (and likely won’t be the last) that weakness inside an industry or the market as a whole created enough of a change that an acquirer would get cold feet.

Some acquirers argue that they should not be required to pay a deal break-up fee, and other companies just opt to pay their penalty and walk away. It is not clear if there is a solid break-up fee in the Danaher-GE deal, nor what the terms are for walking away.

With risks come opportunities. The report pointing out the risks indicated that GE may simply pursue an initial public offering of its entire health care business if this deal is interrupted. One issue that makes it harder to predict the outcome here is that GE already was not expecting the biopharma unit sale to close until late in 2019 (and now perhaps in early in 2020).

Shares of Danaher were last seen up 1.45 at $132.87 on Thursday, with a $95 billion market cap and a 52-week range of $94.59 to $134.67.

GE traded down 1.1% at $10.15. The market cap is $88 billion. The 52-week range is $6.40 to $14.99, but this was a $30 stock at the start of 2017.

Here is what Danaher was expecting when it made the announced acquisition in late February. It was to be established as a stand-alone operating company within Danaher’s $6.5 billion Life Sciences segment. Danaher expected at that time to finance the all-cash transaction with approximately $3 billion of proceeds from an equity offering and the remainder from available cash on hand and proceeds from the issuance of debt and/or new credit facilities. Danaher also had given an estimate that the acquisition would reduce GAAP diluted net earnings by approximately $1.15 to $1.20 per share, but will be accretive to non-GAAP earnings by roughly $0.45 to $0.50 per share in the first full year post-acquisition.

Danaher’s president and CEO, Thomas Joyce Jr., said at the time of the announced deal:

GE Biopharma is renowned for providing best-in-class bioprocessing technologies and solutions. This acquisition will bring a talented and passionate team as well as a highly innovative, industry-leading product suite to our Life Sciences portfolio, providing an excellent complement to our current biologics workflow solutions… We expect GE Biopharma to advance our growth and innovation strategy in an important and highly attractive life science market. We see meaningful opportunities to harness the power of the Danaher Business System to further provide GE Biopharma’s customers with end-to-end bioprocessing solutions that help enable breakthrough development and production capabilities. We look forward to welcoming this talented team to Danaher.

The comments were positive enough less than 90 days ago that one would have to wonder how a “best-in-class” and “talented and passionate” and “to advance our growth and innovation strategy” would suddenly be in jeopardy because the competitive landscape ran into more trouble that may not be long-lived. That said, stranger things have happened.


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