The Wall Street Journal – GE’s Spinoff Deserves Healthy Skepticism
Jan 7, 2023
Healthcare spinoffs are everywhere you look these days. Just in the first week of January, Johnson & Johnson’s consumer unit Kenvue officially filed for an initial public offering, GE’s newly spun-off healthcare unit started trading and Baxter announced plans to spin off its kidney care unit. Swiss giant Novartis, meanwhile, is working on spinning off its generic Sandoz business.
Generally speaking, spinoffs are usually an attractive way to drive shareholder return. First of all, they are tax-efficient. But more important, they allow the parent company to reduce complexity where size in and of itself confers no strategic advantage. Meanwhile, the newly established company gains autonomy to make better decisions. That is the idea with newly listed GE HealthCare Technologies, whose management is arguing that a more nimble company will make faster and better decisions.
But it is hard to get excited about the company’s valuation. The newly listed shares closed at $58.95 on Friday, at the higher end of Morgan Stanley analysts’ valuation range of $52-$59. The Edge Group, a research firm focused on special situations, has a target of $54.52 for the stock, reflecting an enterprise value of 12.7 times forecast 2024 earnings before interest and tax—a discount to peer Siemens Healthineers.