WSJ this evening: GE pushes into heathcare; nears deal to buy $2.9 billion Abbott Diagnostic
GE Nears Deal to Buy Abbott Division
By DENNIS K. BERMAN, KATHRYN KRANHOLD and AVERY JOHNSON
January 17, 2007 7:07 p.m.
General Electric Co. was last night nearing a deal to purchase the diagnostics division of Abbott Laboratories, people familiar with the matter said, as the conglomerate makes a deeper push into the world of healthcare and medical devices.
Exact details of GE's plans could not be learned Wednesday evening, and it is possible that GE may be purchasing a large part, but not all, of the Abbott unit. Through the first nine months of 2006, the division posted revenues of about $2.9 billion and operating profit of around $300 million, according to SEC filings, which represents about 18% of Abbott's revenues and just 7% of its operating profit.
The deal would broaden GE's $16 billion healthcare business, which has moved aggressively into healthcare information technology and molecular diagnostics in the past few years. The deal could mark GE's entry into "in vitro" diagnostics, which includes routine instrumentation and test kits. Abbott's core in vitro diagnostics business has been flat for several years.
In December, GE Chairman and Chief Executive Jeffrey Immelt indicated he was looking to grow the company's healthcare business and add new platforms through acquisitions. Mr. Immelt told analysts and investors, "We've always wanted to build a broader diagnostics company."
GE's main healthcare business remains manufacturing diagnostic equipment including ultrasound and x-ray machines, and more sophisticated screening equipment.
Mr. Immelt made his biggest strategic move in healthcare in 2004 when he paid more than $9 billion for Britain's Amersham, a bioscience and medical diagnostic firm. Through Amersham, GE entered the molecular diagnostic market. GE is now developing molecular agents that are injected into the blood stream and target specific diseases. The agents then show up during screenings indicating that a patient has a particular cancer or disease. Diagnostics related to breast cancer has been among GE's key areas of focus.
Abbott's diagnostics business is driven by growth in two segments: glucose monitoring for diabetics and molecular tests for diseases like breast cancer. Sara Michelmore, an analyst at Cowen & Co., forecasts 2006 diagnostics revenues around $3.9 billion. The core business accounts for some $2.5 billion of that revenue, and is flat compared to 2005. She says the molecular products grew year-over-year by about 20%, while the glucose-monitoring piece grew 9%. The diagnostics division has been a bit of a thorn in Abbott's side since 1999, when regulators found one of its manufacturing facilities to violate FDA regulations. The plant in question made chemical kits used to test for diseases, and despite Abbott's attempts to resolve the matter, a consent decree continued to hamper it for several years.
Within the past year Abbott acquired Guidant's vascular wing for $4.1 billion and Kos Pharmaceuticals for $3.7 billion. It spun off low-growth hospital products unit Hospira in 2004. That same year, it beefed up the glucose-monitoring side of the diagnostics business with a $1.2 billion deal for TheraSense.
Other similar deals of late have brought in hefty revenue multiples. In June, Siemens AG paid $5.3 billion for Bayer's diagnostics division, which had about $1.8 billion in 2005 sales. Siemens also bought Diagnostic Products last year for $1.86 billion, a major premium on that company's roughly $480 million in 2005 sales.
Abbott spokeswoman Melissa Brotz declined to comment.
Write to Dennis K. Berman at dennis.berman@wsj.com1, Kathryn Kranhold at kathryn.kranhold@wsj.com2 and Avery Johnson at avery.johnson@WSJ.com3
