The risk to General Electric’s (NYSE: GE) completed the sale of its BioPharma business for $21.4bn to US conglomerate Danaher, reducing its debt.
The sale on Tuesday will bring $2obn in cash in a critical time when its entire business model is exposed to a downturn, due to the slowdown in economic activity caused by the coronavirus pandemic.
The sale of the BioPharma business is in line with the chief executive Larry Culp’s strategy of trimming its business model by selling non-core assets and using the proceeds for cutting the group’s debt along with investing in power and industrial businesses. The company had sold $12bn of assets last year and reduced its net debt by $7bn.
GE stock was down just under 8% at $7.33 in afternoon trading on Wednesday, and is down 38.6% this year. The S&P 500 is down 20% in 2020.
“Completing the sale of BioPharma represents a critical milestone on our multi-year transformation, fortifying our considerable sources to de-risk our balance sheet and continue to solidify our financial position. I am proud of the teams for completing this transaction amidst a great deal of global change,” said GE’s Culp.
Previously, Culp said that GE’s all businesses including aviation will see significant consequences of coronavirus impact on the global economy and consumer sentiments. GE announced to cut its 10% of the aviation workforce; the company expects to save between $500m and $1bn this year in the wake of slowing demand.
Market analysts are showing concerns over GE’s potential to achieve internal cash flow generation targets following the demand slump and challenges for its aviation business which accounts for 75% of its total profit.
“The up portion of GE Aviation free cash flow assumption for 2020 now seems aggressive, given the fleet groundings and requests by airlines for financial support,” Gordon Haskett analyst John Inch says. However, the analyst anticipates that the company is unlikely to face liquidity issues considering its $35bn bank syndicate facility. GE stock price is currently trading under $8 while Credit Suisse sets price target at $13 and Cowen provides $11 price target.