Seeking to establish a competitive position in the $32 billion global market for in vitro diagnostics (IVDs), the General Electric Co. (GE; Fairfield, CT) announced an agreement earlier this month to buy two of the three diagnostic business units belonging to Abbott Laboratories (Abbott Park, IL). In the $8.3 billion, all-cash transaction, GE will pick up Abbott's highly regarded in vitro diagnostics unit as well as the company's point-of-care diagnostics business. Combined, the businesses generated about $2.7 billion in sales during 2006.

Describing Abbott's diagnostics business as "the premier platform in this industry," GE chairman and CEO Jeffrey R. Immelt said the acquisition f its well with the company's healthcare strategy. "Abbott's global position in the growing diagnostics field is aligned with our objective to deliver a comprehensive array of diagnostic products to customers around the world."

"The laboratory diagnostics market has changed considerably in the last decade," said Miles D. White, Abbott's chairman and CEO. "Innovation in this segment will be increasingly driven by automation, system integration, and a host of skills that GE can offer. As part of GE, Abbott's core diagnostics and point-of-care businesses will be powerfully positioned to sustain and extend their market success."

After taxes, the deal is expected to net Abbott about $6 billion, which analysts expect the company will use to pursue new medical product acquisitions that complement its long-term growth strategy.

Some analysts questioned why GE picked up Abbott's slow-growth IVD units while leaving the company's more profitable molecular diagnostics business on the table. Others were quick to note, however, that GE is already well positioned in that sector as a result of its $9.5 billion acquisition of Amersham plc in 2004. Abbott's highly profitable diabetes care business was also not part of the deal.

Some analysts also expressed concern about the increasing commoditization of the diagnostics business, pricing pressures from insurance companies, and new technologies that will enable significantly more tests to be conducted at lower costs.

In spite of such concerns, GE Healthcare president and CEO Joe Hogan was optimistic. "Through this acquisition, we create the opportunity to integrate our broad-based competencies in diagnostics, life sciences, and healthcare information technology," he said. "In vitro diagnostics and in vivo imaging continue to become more important in providing comprehensive diagnostic solutions. Our capabilities combined with Abbott's in vitro diagnostics and point-of-care diagnostic businesses will allow GE to provide customers with better tools for the full care continuum, enhancing their decision-making capabilities in key disease areas such as oncology and cardiology, and enabling early disease detection, diagnosis, and treatment."

GE, which has identified healthcare as a platform for future growth, was reportedly pursuing the Abbott purchase for some time. The announcement comes just weeks after rival Siemens AG (Munich) closed on the $5.3 billion acquisition of the diagnostics division of Bayer Healthcare (Leverkusen, Germany). When that deal was first announced last June, Siemens said it would create "the healthcare industry's first integrated diagnostics company by combining the entire imaging diagnostics, laboratory diagnostics, and clinical IT value chain under one roof." Siemens and GE are already head-to-head competitors in the medical imaging and healthcare IT markets. GE's latest move puts the companies head-to-head in the diagnostics market as well.

The Abbott deal, which gives GE its first stake in the IVD sector, has been approved by the boards of both companies and is expected to close before the end of the second quarter, pending shareholder and regulatory approval.

© 2007 Canon Communications LLC

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