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GE: $5 Billion Down, $25 Billion to Go

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The story at General Electric (NYSE: GE  ) today seems to be: $5 billion down, $25 billion to go ... and not a lot of time to spend it.

So far this month, we've seen GE throw down the gauntlet in front of oil and gas equipment majors Schlumberger (NYSE: SLB  ) and Halliburton (NYSE: HAL  ) , invading their turf with its $3 billion buyout of Dresser. I've watched in horror as GE dove once more into the consumer finance well with its purchase of $1.6 billion in credit card receivables from Citigroup (NYSE: C  ) . And I've noted -- this time with cautious optimism -- GE's $432 million in new investments to upgrade its home appliances division, a market the company had given up for dead two years back.

Now, with $5 billion spent out of the $30 billion it's promised to spend over the next two to three years, GE's gone shopping again. This time, it's moving in a direction of real growth: health care.

I see sick people
On Friday, GE announced it will ante up $580 million net of cash and investments to acquire all outstanding common and preferred shares of diagnostic equipment maker Clarient (Nasdaq: CLRT  ) . The news is good for shareholders of Safeguard Scientifics, which has a 26% stake in the company,  who will benefit from the 34% premium GE is paying for Clarient. But I'm not so sure the news is good at all for GE shareholders.  

Clarient is a leader in "oncology diagnostic services." While diagnosing cancer is certainly, and sadly, a growth business, the question is whether there's enough growth here to justify the price GE is paying.

Consider: $580 million is 5.8 times more than Clarient's $100 million in sales over the past 12 months. Admittedly, Clarient is expected to grow quite a bit faster than GE proper over the next five years. Still, with GE's own price-to-sales ratio of just 1.1, it's hard to argue GE is getting any sort of bargain here. What it is getting, though, is two new competitors. And it's hard to imagine tougher rivals to tackle than the twin behemoths of diagnostic testing, Quest Diagnostics (NYSE: DGX  ) and LabCorp (NYSE: LH  ) .

Personally, I think GE is biting off more than it can chew, and overpaying for the meal. But what do you think? Tell me in the comments section below.

Quest Diagnostics is a Motley Fool Inside Value selection. LabCorp is a Motley Fool Stock Advisor pick.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.

Read/Post Comments (6) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 25, 2010, at 8:19 PM, yazlf7 wrote:

    You don't even know what Clarient does. They're not a diagnostic equipment maker. They're a leader in oncology diagnostic services (no quotation marks needed if you understand the business). They've got the best business model in the space that other reference labs are trying to copy. Other reps are coming into my office saying, "We want to change and become like Clarient."

    The real story if anyone cares to do any real reporting is that GE is getting a steal. It's because Oak is not too happy with the timing of their investment in CLRT and forced SFE to shop the company. That way SFE can have some hope of unloading their other holdings down the line and not get blacklisted in the investment community.

    Clarient would be a good fit with Roche (who already bought a major diagnostic equipment maker, Ventana). We'll see how GE does.

  • Report this Comment On October 25, 2010, at 8:41 PM, falas56 wrote:

    Click here, it's FREE.

  • Report this Comment On October 25, 2010, at 9:34 PM, kdt34wqx wrote:

    GE has lost $34 billion of shareholder’s value (about 16%) since it high of $19.70 in April of 2010, never mind the $270 billion (61%) since 2007. GE shares are dropping because savvy investors know the company is run by arrogant managers who think they know what they're doing and they’re better than everyone else. They don’t and they aren’t. This would have the added benefit of getting rid of the present GE management. Wall Street would like GE better if they sold off their profitable businesses and distributed proceeds to their stockholders. Credibility will never be restored under Immelt and Sherin. They need to be fired.

  • Report this Comment On October 26, 2010, at 8:38 AM, JohnnyJay1 wrote:

    It would be refreshing if be nice if you understood exactly what you are writing about. You don't have a clue as to what market Clarient is in and who actually are their competitors.. BTW genius Quest diagnostics doesn't compete against Clarient.

  • Report this Comment On October 27, 2010, at 3:31 PM, trexx827 wrote:

    what a joke. I am a rep in the cancer diagnostic business. They dont have anything that most other labs have. A matter of fact they only operate in the hospital environment. The real money is in the clinics where labs get the entire speciman and bypass the hospital.

    I rarely even see them in any of my accounts.

    They way overpaid for that company

  • Report this Comment On October 27, 2010, at 3:33 PM, trexx827 wrote:

    quest doesn't compete against clarient are you kidding me. Quest has all the contracts. So any managed care is going to quest I deal with it all the time and so does Clarient. They do have some IP that is attractive to GE but their market share in cancer diagnostic business is miniscule.

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