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64

Does it make sense for one company to

sell medical imaging machines and jet

engines? On the face of it, no. But keep-

ing General Electric Co.’s health-care

business in the fold is one of the smart-

est things Chief Executive Officer Larry

Culp has done.

Some background: In 2018, with GE

shares in free fall, investors were des-

perate for a shake-up that could help

the heavily indebted industrial giant

raise cash and unwind its complexity.

Then-CEO John Flannery proposed in

June of that year to distribute the bulk of the health-care

business to shareholders and shift $18 billion of liabilities

onto the standalone entity. A few months later he was out

of a job. Culp succeeded him and ultimately yanked the

plan to make health care independent. He instead struck a

deal to sell GE’s biopharmaceutical unit to his former com-

pany, Danaher Corp., for $21.4 billion.

The biopharma division included chroma tography

products, cell-culture media, and other equipment

and software. It was one of the fastest-growing parts of

GE Healthcare, and parting with it meant sacrificing some

of that business’s future. Danaher has said core sales of the

former GE biopharma assets (now called Cytiva) grew more

than 25% in 2020. Given that potential, analysts includ-

ing John Inch of Gordon Haskett Research Advisors have

argued GE should have gotten more for the business.

But the deal gave GE a much-needed cash infusion at just

the right time. The March close meant the company had

ample liquidity as the novel coronavirus

upended the world. GE was able to trim

its debt load by $16 billion last year. And

though the core imaging-equipment part

of GE Healthcare hasn’t always been the

sexiest business, it certainly has been

important during the pandemic. GE’s

ventilators and CT, ultrasound, X-ray,

and patient-monitoring systems are used

to diagnose and treat Covid-19.

GE’s remaining health-care businesses

also throw off a lot of cash—$2.6 billion

last year, in fact. With the com pany’s

crown jewel aviation division hobbled by the collapse in air

travel and its power and renewable energy operations still

in turnaround mode, health care was the only one of GE’s

main units to generate material positive free cash flow last

year. Even with the loss of the biopharma business’s con-

tribution, cash flow was up relative to pre- pandemic times,

thanks in part to better operational discipline.

GE is investing in new products and technologies aimed

at improving diagnoses and shortening hospital stays. But

it’s still possible, likely even, that GE will eventually make

the health-care unit independent. “Most people would

look at the GE portfolio today—aviation, power, renew-

ables, and health care—and if you asked them which of

those four industrial businesses is less industrial than

the others, people would focus on health care,” Culp

said at a Barclays Plc conference on Feb. 16. For now,

though, it’s a handy business for GE to have around. <BW>

ILLUSTRATION BY GEORGE WYLESOL �Sutherland is a columnist for Bloomberg Opinion

By Brooke Sutherland

GE’s Culp Was Smart to

Hang On to Health Care

◼ LAST THING

With Bloomberg Opinion