GE and Abbott Labs call off $8 billion deal
By Rachel Layne and Elizabeth Lopatto
BOSTON: General Electric and Abbott Laboratories have canceled GE’s proposed purchase of Abbott’s diagnostics units for $8.13 billion because they could not agree on terms.
GE, the world’s biggest maker of medical-imaging machines, would have acquired operations with $2.7 billion in annual sales and products like devices that test blood proteins for heart disease. Abbott wanted to increase its focus on its higher-profit pharmaceutical units.
Glenn Novarro, a Bank of America analyst, said GE wanted changes that would have cut the purchase price, and Abbott rejected the proposal. "It’s good that they’re not buying this asset," said Peter Bates, an analyst at T. Rowe Price & Associates in Baltimore.
"It was a business in decline, and GE should be buying back their stock." Abbott now will not sell the diagnostic operations, said a spokeswoman, Melissa Brotz. "We believe this remains a highly valuable business, and our intent is to manage it within Abbott." The sale agreement was announced in January and its cancellation late Wednesday.
A GE spokesman, Russell Wilkerson, said that the company would discuss its plans for the cash it would have paid for the Abbott units during its earnings conference call Friday. The termination will not affect GE’s 2007 profit forecast, Wilkerson said. Abbott said its earnings forecasts for 2007 and 2008 also remain unchanged.
"In talking to the company, it is our sense that GE asked for additional terms that would have decreased the value of the transaction and these terms were not acceptable to management" of Abbott, Novarro said in a note to investors Thursday.
The collapse of the deal may be a "blessing in disguise" for GE, Jeffrey Sprague, an analyst at Citigroup, wrote in a note to investors. He estimated the GE was paying about 15 times earnings before interest, taxes, depreciation and amortization.
"The Abbott business was a good strategic fit for GE, but, in our view, was not a critical asset and was very expensive," Sprague wrote. "At that valuation, we believe the business and deal terms needed to be pristine for GE to proceed." Shares of Abbott rose 2 cents to $53.23 in early Thursday afternoon trading at the New York Stock Exchange.
GE rose 9 cents to $38.29. Abbott’s diagnostic unit has been hampered by manufacturing issues that have had the division under U.S. Food and Drug Administration supervision since 1999. All but one manufacturing site passed FDA inspection within recent months, Brotz said.
"There were several factors involving the separation of the business in which the companies couldn’t come to resolution," Brotz said. "In the end, both companies believed it was in their best interest to walk away."