GE's Danaher Deal Doesn't Solve Its Problem With Growth

It's a bio farma business to Donna Her Donna. He is actually up a percent for total consideration of twenty one point four billion dollars, providing a major boost for the trouble conglomerates. Turnaround. To help us kind of dig into the details of this transaction motivations on both sides is Brook Sutherland. Brook is a deals and industrial columnist for Bloomberg Opinion. She joined us here in our Bloomberg

Interactive Brooker Studio. So, Brooke, is this just part of g s plan to just trim down and focus on that balance sheet? It really is. I mean, this deal is all about the balance sheet. I mean, I think

Larry Cole. The first sentence of his quote, and the statement was about, you know how this would allow the company to reduce leverage, uh twenty, you know, one billion dollars coming in the door in cash and then about four hundred million of pensions being transferred with this asset, which is a big deal given g has a very significant unfunded pension balance. Um. You know. But what I think is interesting about this is sort of the counter balance was what John Flannery promised to do when he

was running the company. So his plan for the healthcare business was to spin off to shareholders and sell via an I p O. And the reason why he did that and why he did a lot of the things that he did, is he was trying to balance the need to pay down debt with you know, a desire to sort of give something to equity holders, give them a chance to participate in the upside opportunities for some of these ge businesses. And I think what you've seen Larry Colp do time and time again is say, forget

all of that. We need all the cash we can get, and we're going to structure these deals in a way that optimizes the amount of cash coming in the door. The incredible irony of that is that the shares are rallying the most is two thousand nine, So shareholders are liking what they see, regardless of any longer term better

potential from keeping the business on hit right. Well, so I think that, um, for the time being, the interests of bond holders and shareholders are aligned because obviously the balance sheet is the biggest overhang on the stock right now, it's the biggest factor driving the stock, and so to be able to mitigate that, and this Life Sciences deal goes a very long way to doing that, is a huge step forward. But I would point out the shares are rallying, but they're back to about where they were

in October. So, yes, your interests are aligned at a certain point, but that only lasts for so long and as you start thinking about what does the g E of the future look like. So they're keeping the core healthcare business in the fold right now, they say, you know, they're going to look at other options for that. They're

not going to do the I p O right away. UM. I think part of that is the fact that they need the cash flow from that healthcare business to set the challenges that they have in the power unit in G Capital. Healthcare is one of the best cash generating assets that G has, and especially as you look at the possibility of a recession in one that's going to hit the aviation business really hard. So I think just given all of those factors, it makes sense to keep

Healthcare in the fold. But eventually, you know, all signs are pointing to that eventually being separate. And clearly this is a company with a lot of challenges, and I just you know, as you sort of take a step back and say where do we go from here? Once you play this card and you bring the cash in the door, that sort of solves your balance sheet issues in the near tour, but you still have to figure out, you know, how does this company grow? How do we

deal with all of the problems that we have. So for Donna her the stock is up eight or nine percent today, which is unusual for an acquirer, particular cash acquirer. So what's going on here? Did they get a great deal or there's a huge synergies what's driving the upside for Donner? Right? I mean, this is a great deal for Dannahr. I think you know, this is a business that they know well they've been increasingly pivoting into life sciences.

I think it's, you know, a more attractive multiple than what they've paid for some of their past deals, which have been on the price yeer side. Obviously in the healthcare spaces, they sort of transition away from their industrial past. Um. Yeah, I mean, I just think this is a really slam dunk deal for Dana Her. And what the company is really known for is buying businesses, bringing them in and then applying the Dana Her business system to those businesses

and really improving their profitability. I think clearly what we've discovered through this whole ge process is that some of these assets are not always managed to their greatest potential. And you have to wonder, you know, some of these life sciences business at a time when you have so many cash calls at the company where they investing to the extent that they needed to. Uh. I think there's just a lot of opportunity for Dana Her to do

more with this business. Brook Sutherland are ge correspondent joining us here in our eleven three or studios. Brook Sutherland is really a Blomberg opinion columnist UH, and she covers industrial companies, among many other things here at Bloomberg. We thank you for being with us. Really interesting day for

General Electric. Well. Today President Donald Trump raised the prospect that he could sign a new trade deal with the Chinese counterpart, gene Ping, as both sides express optimism that substantial progress is being made towards ending the trade war between the world's two biggest economies. To help us dig into that, we bring on Leland. Melvin Leland is CEO of the China based book Internaction. I'm sorry, Leland, Millard, he's with us in our Bloomberg Interactive Broker studio here

in New York. So Leland, thanks for being with us. Um, what is your sense as to what will actually get done between China and the US? Will it be anything material? In your opinion? Now, I think that we were set up from the very beginning to have a very limited deal. It was very clear that the President wanted movement on the trade deficit. He wanted to announce a lot of big imports, maybe some long term contracts, so it's sounded

good to the farming base. Uh And and he wanted to push on intellectual property uh so, theft and coercion. Uh And I think that we'll get we'll get stuff on that, We'll get a little bit of stuff on market access. In general, this is not something that is a broad deal. It's not what they originally sold it to be, and it's there's gonna be no structural reform whatsoever. Is China in a better negotiating position right now, given the fact that they're allowing leverage to creep back up

UH and potentially juice their economy? You know, I think the problem is that people haven't been able to get a good UH reading on the Chinese economy for a few months. The Chinese economy is not not not in great shape right now, So I don't think that they've materially improved in the last month or two in terms of just letting the credit flow um. Now, overall, they want to get this trade stuff out of the way so they can batten down the hatches and really focus

on improving their domestic economy. I don't think that the pushed out of the way so that they can get down to business domestically. So, Lena, why is it so hard to really get some of these big issues on the table and to start knocking them off one by one? Maybe seems not just the Trump administration, but we've seen through history. What is what what are really the tough things and why is China playing so uh such such hardball?

Because these are not preferences. So we talk about structural reform, we're not talking about preferences that the leadership has. We're talking about the absolute foundation of the way the Chinese economy runs. So when you're talking about favoring state companies which stayed on enterprises, when you're talking about subsidies and and repressing households in order to boost the state, and you're talking about non tariff bearriers, this is the way

that the Chinese economy is able to run. It's a very different than the market economy. It's not a commercial financial system. This is the way the Chinese economy is run and one of the ways that the Chinese Communist Party is able to maintain control of the country. So the idea that they're simply going to say, okay, well, you know, it's it's about time that we got with the program and became a market economy, and we we

we ran our economy the same way the US. That was never going to happen, and it certainly was never going to happen after a ninety negotiation where very little pain was threatened. All right, just taking a step back, you nailed it when you just said back last year. There's going to be a deal. President Trump wants a deal. It's going to be a narrowly crafted deal. This is not going to deal with the thorn near issues. Both sides can declare some sort of victory and move on.

Nothing really will change. Lightheiser, however, wants something different, and he and President Trump are increasingly, at least appeared to be increasingly pitted against each other. How will that tension factor into these negotiations. Well, I think the first and foremost, Robert Leightheiser is a is a good soldier, So he is he knows he's not the president. He's doing what

the president wants. At the same time, he entered this administration to get something done, and that was he saw an inequity in the relationship and he wanted to be

one of the guys who helped make it right. And I think this is very frustrating for him and quite frankly, a lot of people in this administration who thought that they were on the verge of summoning up leverage that no one had been willing to do for many, many years ever, truly uh, and and to push something on China that would really make a difference to to to change the basically the ground floor of the relationship. And then as we get to a deadline, everyone sort of

loses their nerves. So this has to be extremely frustrating for Lightheiser. So I'm just trying to understand this because if if they were thinking that there was more on the table then say, uh, something having to do the trade deficit, then was President Trump ever trying to do that? I mean, is is that could that be back on

the table? I don't think it was ever on the table when we when we spoke to two administration officials of this, it was very clear that there were there were priorities, most of them were political priorities involving the trade deficit. Intellectual property, to their credit, was a major issue that they wanted to to make progress on theft and coercion of intellectual properties a major issue, and I think that we will see UH some some major announcements

on that now. The key, of course, is not whether the Chinese make announcements on on IP theft and then create a regimed protect intellectual property. It's whether they're actually enforce it. And this is something that light Higher himself

has been saying over and over. If the Chinese can simply flip a switch the next time that there's a problem in the relationship and all this beautiful enforcement, all this these i P laws and i P courts and everything else that they've promised to do just suddenly go away,

then what has this entire process been. And that's why there has been so much of a push by some people for structural reform, because the opposite of structural reform is transitory transitory reform, which will just go away as soon as the relationship changes. And I think that's what

people are fearing we're walking into. So is that fear crystallized in the sense that maybe we just have one bite at the apple here and we've if we lose this opportunity now, or if we do pass on the big structural issues, that we may not be able to revisit them for some period of time. Yeah, I mean

that's the fear. So, so we don't know how many bites the apple will get, but we do know that an enormous amount of leverage was summoned in order to push the Chinese into this negotiation, And is that that leverage the tariffs per se? It was the tariffs, It was threatening some other things, but yeah, principally the tariffs. And you can agree or not, but but this summon leverage, it's very hard to summon, and the Chinese aren't going to be as open to doing this a year from

now or three years from now. So maybe this is the last by the apple. But either way, every year that goes by, the Chinese getting crementally stronger and more able to to push back on this and are now more knowledgeable. I'm more in recognition of the fact that this unequal trade relationship has caused the US to have more leverage, and so they're doing things to alter the

relationship as well. Meanwhile, a lot of people are wagering that China will succeed in keeping up its economy and keeping its growth great high by engaging and more stimulus, which has already begun to do. Do you think that the market is mistaken with their optimism around that? Uh? In terms of medium and long term I think they are.

And and there's there's you know, we we have flash data coming out this week, so we're gonna have a new reading of the economy later this week and the first one in twenty nineteen that actually shows what's happening. But I think if you look at the ryh is in line, then there's something that people aren't paying enough attention to, and that is the Chinese economy is going

to slow no matter what happens. Best case scenario, worst case scenario, the Chinese economy, because of slowing returns on investment and debt accumulation, is going to slow quite dramatically over the coming years. So the Chinese have to build this into their narrative. Why is their economy slowing down? Well, they just have a beautiful excuse. Now, Donald Trump launched

a trade war, the world is being mean. So President she and and and and the rulers in Beijing are able to look at this and say, you know, we have an excuse now for why our economy slowing. They might run with this, So you may be looking at a different paradigm then you've looked in different years. They may be willing to accept slower growth because they can blame it on somebody else. At this point, that's fascinating.

From a political standpoint, China may allow its economy to slow even more, especially if President Trump continues to ramp up pressure. Leland Miller, thank you so much for being with us. Leland Miller is chief executive officer of China Beije Book International in New York, joining us here in our Bloomberger Active Proper Studios. Right now we are looking

at oil prices that are sharply lower. So they're taking a queue from President Trump's twitter feed with the biggest decline in w t I that is traded on the nimax in a number of months. Joining us down to talk about this, uh is John killed off? Actually I'll give you exact date since December. Joining us now, John killed a founding partner at again at Capital John. I was actually really surprised that the oil markets responded so much to President Trump's tweet, because honestly, hasn't OPEC lost

a lot of the control over this. Well, if everybody heard the way you read the tweet just now would be I think we beat you off more. Lisa, Just just for the record, thank you. I think the emotion you brought to that, the emotion you brought to that was terrific. Um. No, the uh, I mean the the initial reaction to it was actually fairly muted, but it

really started to pick up steam. Um. I think when when you sort of thought it threw from a market perspective in that a, the Saudis have a track record of placating President Trump and responding to him when he makes these demands. That's what got the market into trouble at the latter part of last year to the downside in a big way. And too um. There has been some speculation about what the state of affairs will be surrounding the waivers that had been granted to various countries

and companies to continue to buy Iranian oil. Um, you know late last year as well, which is also part of that that sell off, that dynamic. Um. You have to believe that those waivers are probably going to get renewed to a great degree, given President Trump's concern about where oil prices are presently. So um, as you sort of got over the uh, the shock value of him

weighing in yet again on the oil market. Um Uh, it was you know, a pretty bearish tweet, so so John, prior to today's market action that you know, oil had been grinding higher every day up about off it's December low and WEXT test West Texas intermediate crude. What was the bull case for driving oil higher? Well, a couple of things. I mean, there's obviously a lot of irritants in the market. I mean that the Venice, the tragic

men as well in situation. We had elections over the weekend in Nigeria that could have could have devolved again and not some of their oil offline. That still may happen, and we're watching it Libya too. But really the Saudis have really put their shoulder to the wheel in terms of cutting their output, cutting their exports. Uh. And they also had a problem with one of their large offshore fields of power cable got cut somehow and um that

had knocked a good deal of their production offline. So a lot of things were adding up here to tighten the market, um you know, particularly as it relates to the type of crude oil at that Venezuela has pretty much ceased putting on the market um so. And and and really the the renewed prospects for for for the for the U S. China trade talks that have you know, got the stock market to where it is also fed

into the to the oil story. So right now I'm looking at w t I fifty five dollars and thirty six cents a barrel, looking at Brent UH sixty four dollars and ninety cents. What's the sweet spot for US shell producers to continue to produce, be profitable, UH, and yet still have demand where it is right now, closer to closer to sixty dollars a barrel plus is really ideal with w t I or with Brent. Oh yes, I'm sorry for w t I. UH. That would be

a Brent price of about seventy dollars. I mean, President Trump cur only did the US oil industry no favors this morning with that tweet. And you know it's kind of curious because I know he wants us to be energy dominant. Um, this doesn't help that. And you know we've spoken before. You know, these oil prices w t I O prices fifty and below. You can talk about

how they've worked. The shall players have worked break evens down to thirty a barrel, but the aill in costs UH below fifty bucks for w t I. They are feeling it. And we did see um recounts come down. We did see drilling activity come down in response to the sell off again late last year. That culminated in the in the December low um and they're only starting to come back now. So uh, we're starting to get into the red zone. Are ready for them with prices

even here at fifty five. So, John, whenever we have you on we're talking global oil, I can't help but always raise a question of Russia. What is Russia doing in the market place in terms of supply right now? How disruptive are they VVSA, the OPEC. Well, you know they leadership talks a good game. You know, President putin their energy minister Novak. You know that they they'll sit there, it'll sign everything and and and you know, hug this

Autias and say we're with you. And then the numbers just don't pan out in terms of production because their companies don't want to be part of these production cutbacks. You know, they see shale as a threat. They want markets here. They actually operate in a much more commercially appropriate way than sort of cartel ish, so they don't particularly care for these these antics and see themselves being set up ultimately for failure. As the US production now

goes over twelve million barrels a day. They're seeing this so um, they're not actually being as that helpful to the Satties, and the Saddies have remarked about this. So I'm not sure how much longer the little coalition they've strung together holes and that's going to be another negative for prices, I think ultimately, John this the tweet from President Trump raises a question what price of oil does he want? Because we're still way below where we saw

it at its peak back in two thousand fourteen. What's he looking for? If I had a guess, he wants to see w T I below fifty dollars of barrel, down around forty five, which would translate into about two dollars a gallon or so at the pump of the

gas a lead pump. I think he's very uh A sensitive to that if he could deliver I think on that um and and he's right too, because when prices get north much north to stay to fifty or start to reproach that three dollar a gallon, will you start to see hits to consumer confidence uh and other um, you know, measures of of just confidence in the economy generally. Uh so we're obviously on re election watching a big way, and I think he wants to see a four handle.

So John, if you take a look at the global supply demand out there, is there a model out there that gets you to that fore handle? Yeah? Pretty easy, Pretty easily. Actually, I was very distrustful of this, of this reality. Now, I didn't see President Trump's tweet coming into to be a factor. But um, you know, as we start to get into the latter part of the winter early spring, there's a lot of refinery maintenance that gets done that's going to cause a big dent in

crude to all demand at least for a while. Um. The situation in China, their economy is really hurting, and I guess partly from the trade war, but I think it goes beyond that. Um, certain measures of their economic manufacturing activities, factory orders, everything that goes to their sort of energy intensity usage is has turned over, has rolled over, and that's a big part of the de band equation here. And I think that, coupled with just a lack of

will by everyone else except Saddy, we're able to curtail supplies. Max. The argument for lower prices. You know, it's so interesting Paul, because as John talks mid forties, uh for oil, I wonder how many shell producers go out of business with that. Yeah, exactly along your line of thinking, exactly right. I think they'd like it at that to sixty plus kind of range. John killed off, founding partner again Capital on All Things Energy, joining us on the phone from New York. The Oracle

of Omaha is looking for an elephant sized acquisition. One of the takeaways from this weekend's investor meeting with of course Berkshire Hathaways that founder we're talking, of course, Warren Buffett catch Glinsky joining us here in our Bloomberg Interactive Broker studios. She covers finance for us at Bloomberg News. So, Kat, what about this big acquisition? I feel like Warren Buffett has been holding this out for a long time, given his hundred and twelve billion dollar cash pile. Is this

year different? No, And he quite and I mean he said in his letter, he was like, you know, they didn't find a big deal, and that might not change in twenty nineteen. It might be another year in which she just actually spends a lot more money on common stocks. So what about was there anything in the letter? I know you've you've read these letters before. Was there anything in this letter that was new or different or interesting

or what were some of your key takeaways? Well, one key takeaways kind of a won key Berkshire thing, but they removed the use of book value as kind of a measuring of intrinsic value. And it's a it's a really wonky type of kind of Berkshire nugget. But but but it's good because it really shows how Buffet has taken this company from you know, an investment that was normally just mostly full of common stocks to a company that now spans like BNSF, Dairy, Queen Geico. It's kind

of all over the range, and that's crucially important. Well, is this why they posted billion dollar loss? That was because of the stock investments. That's kind of still still an important as he mentioned in the Berkshire Force, it's still an important grove for them. Um. They post posted that partially because of Kraft Hinns and partially because of this accounting change that requires them to post unrealized gains

and losses in there um net income. He says, to look through that a bit because he's a long term investor, he'll stick with the stocks for a while, So even if it's a quarter they're down a lot, he's probably going to hold on until it's a little more positive. Well, how about Apple Stock that's the largest shareholding holding up Berkshire Hathaway, that the Apple stock is up ten percent this year, any sense of what he wants to do with that position. He's still favorable with it. So they

trimmed it a bit in the fourth quarter. But he clarified today that was not him, that was an investing deputy. He didn't name which one, And I think that's really important to give a sort of sign of faith that that he still likes the company. He said he would buy more of it, but frankly, it's a little too

expensive right now. I thought it was interesting some of his comments this morning on CNBC about Kraft HIGs, basically saying that he's not selling yeah, considering he's a very big investor, but basically that the craft was overvalued purchase uh, and that he wouldn't buy any shares if he didn't have such a big holding. Not great shares of Craft HIGs down nine tents of one percent, Yeah, I don't

think it was a positive take on the company. I mean he did, to be fair, he did say, you know, they're still value in the brands they you know, wouldn't he wh owns so much of it. He does have to be positive to an extent, of course. Um, But I do think it took a bit of a negative turn. I mean the fact that he won't consider buying the rest of the company even though their stock hit a

record low Friday. I think sort of says a sign that, like, it's really hard to beat on these consumer companies when the coodsumer preferences are changing just as fast as they are these days. So cat um, I think Warren Buffets eighty eight? Is that right? Correct? Okay? So in the letter, was there anything about success or potentially so if you're looking for explicit sort of directives. No, he did praise

greg Able, and he praised Jane. But the important parts I think that he touched on with a succession are he spent a chunk of the letter describing Berkshire as a forest and the different groves that make up it. And he said, you know, Berkshire is better together rather than some of its parts. And I think that was actually really crucial because he's you know, there's probably gonna be calls to break up Berkshire once he leaves, because

it's kind of a weird mix of businesses. But in it in essence, him saying don't break it up makes it easier for successor to say, hey, look, Buffett himself said it's better together. Cat is the Oracle of Omaha kind of out of new ideas and tired out. The reason why I asked is because I was looking at the list of high points from everything that was said yesterday or just over the weekend in general on Saturday. Um, it was the same stuff said last year. The cash

position is about the same relative to book. What's your take? I think he's struggling and uh, and he sort of clarifies this too. Right. So one of the most more interesting things he said this morning was he got into oracle in the third quarter and then he completely got out of it in the fourth quarter. And that's just very odd for Berkshire to do. They like to hold it for a long time for so for him to get out and get in and get out is um

is strange. And he he clarified it was because he thought he knew more about the business, but he realized he didn't actually understand it. And I think that's sort of the problem these days, is that, you know, he's really trying to sort of adjust to the whether it's the new consumer environment or the new investing landscape, but it's changing a lot. And I think that's why he's relying on like his investing deputies, Todd Combs and Ted

Wessler as well. And I think why he's you know, Jane and Greg Able are running some of the operating businesses. I think it's just sort of build up sort of this breadth of people who can also look at different ideas. And he mentioned Todd Combs and Ted Wesler help him with acquisitions, which I think is also incredibly important, you know, in this kind of dearth of emine. So if if new ideas, exciting ideas you know that that hit his screen are a fewer and farther between. Is pressure building

from shareholders to redeploy that hundred billion dollars. Okay, I should start by back stock. I think it's it's nuance because you know, you so he bought back one point three billion dollars in shares last year, and that was a change. I mean, he normally sort of doesn't favor capital return. He'd rather buy businesses, he rather spend it on common stocks. Um, so I think there is sort of a change, and I do agree that I think a lot of investors would love to see him buy

back more stock. But then again, you know, as many investors point out to me, Buffett made his money and made his name and times of market turmoil, so some people are saying, hey, buddy, a hundred twelve billion, not too bad to sit on it, wait on it when the market turns, then swooping. Interesting. So the company repeat reported earnings this weekend, very disappointing numbers. The annual letter came out, really not a lot of new stuff in the annual letter. And the shares are up, and the

shares are up, that's right. So it's uh, I think, you know, I think the market is still according Warren Buffett and Berkshire Hathway the benefit of the doubt here, it seems like, uh, you know, whether it's you know, returning cash or looking for the next big whale, or just adding or trading around existing positions, I think the market seems to be giving Warren Buffet a pass here, so in fairness, given his track record of returns, I kind of understand it, and operating earnings were up to

be fair exactly right, Thanks so much, could J Lynkski, us financial reporter from Bloomberg News. Thank you. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa Abram Wohits. I'm on Twitter at Lisa Abram Wohits. One before the podcast. You can always catch us worldwide on Bloomberg Radio