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GE Is Near Deal for Abbott Unit
  Medical Business
Continues Push
Into Diagnostics

Wall St Jnl
January 18, 2007
General Electric Co. last night was 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 health care and medical devices.
Details of GE's plans couldn't be learned last night, and it is possible GE may be purchasing a large part but not all of the Abbott unit. Through last year's first nine months, the division posted revenue of about $2.9 billion and an operating profit of approximately $300 million, according to Securities and Exchange Commission filings, representing about 18% of Abbott's revenue and just 7% of its operating profit.
GE, Fairfield, Conn., declined to comment. Abbott spokeswoman Melissa Brotz declined to comment.
The deal would broaden GE's $17 billion health-care business, which has moved aggressively into health-care-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 for diseases such as HIV and cancer. The revenue of Abbott's core in-vitro diagnostics business has been flat for several years.
Last month, GE Chairman and Chief Executive Jeffrey Immelt indicated he was looking to expand the company's health-care 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 health-care business remains diagnostic equipment, including ultrasound and X-ray machines as well as more sophisticated screening equipment.
Mr. Immelt made his biggest strategic move in health care 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 to be injected into the bloodstream to 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 have been among GE's areas of focus.
The diagnostics business of Abbott, of Abbott Park, Ill., is driven by growth in two segments: glucose monitoring for diabetics and molecular tests for diseases such as breast cancer. Sara Michelmore, an analyst at Cowen & Co., forecasts 2006 diagnostics revenue of around $3.9 billion. The core in-vitro business accounts for $2.5 billion of that, and is flat compared with 2005. She says the molecular products rose year-over-year by about 20%, while the glucose-monitoring segment rose 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 in violation of Food and Drug Administration 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 Corp.'s vascular wing for $4.1 billion and Kos Pharmaceuticals for $3.7 billion. It spun off low-growth hospital-products unit Hospira Inc. 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 of Germany paid $5.3 billion for German drug maker Bayer AG 's diagnostics division, which had about $1.8 billion in 2005 sales. Siemens bought Diagnostic Products last year for $1.86 billion, a large premium to that company's roughly $480 million in 2005 sales. If Siemens' purchase price of Bayer is any indication, Abbott's diagnostic unit could go for as much as $9 billion.
G.E. May Buy Abbott's Diagnostic Unit
NY Times
Published: January 18, 2007
General Electric is near a deal to buy Abbott Laboratories' medical diagnostics unit for as much as $5 billion, according to people involved in the negotiations.
Acquiring the Abbott business, which makes and sells glucose monitoring systems, blood test kits and other chemically based diagnostic tools, would enable G.E.'s health care unit to expand its growing stable of diagnostic products and services.
The G.E. unit, GE Healthcare, has annual revenue of about $16 billion and has long been a leader in expensive diagnostic machines like CAT scanners and MRI equipment. The Abbott product line would help G.E. add nursing homes and other nonhospital medical settings to its base, analysts said.
They predicted that G.E. would quickly wring efficiencies from the Abbott Diagnostics unit. GE Healthcare's margins generally top 16 percent, they said, while Abbott Diagnostics' margins are about 7 percent.
The diagnostics business, while profitable for Abbott Laboratories, is far smaller than the company's drug business, which had profits of $3.1 billion on sales of $9.84 billion in the first nine months of 2006. Abbott Diagnostics, by contrast, had profits of only $306 million during that period, on sales of $2.98 billion.
In November, Abbott Laboratories expanded its drug business by agreeing to buy Kos Pharmaceuticals for $3.7 billion.
Abbott is also betting on growth in its cardiovascular stent business. Early last year the company paid $4.1 billion to acquire Guidant's stent and other vascular business as part of the deal that enabled Boston Scientific to acquire Guidant.
Abbott is now hoping to win federal approval to enter the lucrative market of selling drug-coated stents - tiny metal devices that are designed to prop open coronary arteries after blockages have been cleared.
Abbott's diagnostics business, though, has been under something of a cloud since the company agreed in 1999 to pay $100 million to settle accusations that it had failed to meet federal quality standards in producing its test kits.
"They lost a lot of ground to competitors," said one analyst, who said that he could not be identified until the deal was formally announced. "Shedding it to streamline management makes some sense," the analyst said. "It's a natural progression of their morphing away from the hospital supply business."
He noted that Abbott in 2004 had sold off its hospital products business into an entity called Hospira.
For G.E.'s part, the acquisition continues an acquisition strategy that has included buying Amersham, a British diagnostic pharmaceuticals and biosciences company, for more than $9 billion in 2004.
But some analysts wondered whether G.E. was overpaying.
"G.E. is getting a reputation as a place that will pay top dollar for a fixer-upper," said another analyst, who declined to be identified because he had not yet written to his clients about the deal.
The deal would comes just after G.E. announced on Monday that it was buying Smiths Aerospace for $4.8 billion. That announcement came less than a week after word emerged that G.E. had put its lackluster plastics business on the auction block, in the hope of getting $8 billion to $10 billion for it.
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