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BioPharma Sale to Strengthen General Electric’s Balance Sheet

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BioPharma unit divestment

In late February, General Electric (GE) made a breakthrough toward reducing its debt obligation and strengthening its balance sheet. The industrial conglomerate revealed on February 25 that it had agreed to sell its BioPharma business unit to Danaher (DHR) for a total consideration of $21.4 billion.

As per the agreement, Danaher will pay $21 billion in cash and assume some of GE’s pension liabilities. The two companies expect to complete the transaction in the fourth quarter of 2019.

The divestment of the BioPharma unit will bring in substantial cash flows to GE that could help the company reduce its debt and strengthen its balance sheet. The company ended 2018 with total debt of over $110 billion.

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Analysts are optimistic too

Most analysts are confident about this deal and believe that there’s no further downside risk for GE stock. William Blair & Company analyst Nicholas Heymann said, “In our opinion there is no fundamental case for GE’s share price to have further downside risk,” CNBC reported on February 25.

According to CNBC, UBS analyst Peter Lennox-King believes that the deal will bring significant cash flow, which “effectively puts the leverage question to bed.” Lennox-King has raised his target price on the stock to $12.

The BioPharma deal is in line with GE’s ongoing business restructuring and realignment plan. GE has been facing a severe liquidity problem for the last few years. To strengthen its balance sheet, it announced a series of restructuring plans in June last year. GE’s restructuring plan mainly involves the divestiture and spin-off of certain assets to focus on three primary sectors: renewable energy, aviation, and power.

Those interested in GE stock can gain exposure by investing in the Industrial Select Sector SPDR ETF (XLI), which holds 3.9% in the stock. The ETF has also invested 5.4% and 5.1% in 3M Company (MMM) and Honeywell International (HON), respectively.

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