Kicking off the new year in a big way, General Electric (Little Chalfont, UK) last week unveiled its plan to buy the in vitro diagnostics businesses and Abbott Point-of-Care diagnostics business (formerly known as i-STAT) of Abbott (Abbott Park, Illinois) for $8.3 million, in what could be the largest deal of the year in monetary terms.

Abbott’s Molecular Diagnostics and Diabetes Care businesses are not part of the transaction and will remain part of Abbott, the companies said.

GE Healthcare said that the addition of the core laboratory diagnostics businesses of Abbott will broaden its diagnostic offerings and complement its existing positions in in vivo diagnostic imaging systems), as well as its molecular imaging, information technology, and patient monitoring capabilities across the complete healthcare continuum. (In vivo imaging uses X-ray, magnetic resonance, ultrasound or other imaging procedures to look at what is in the body to diagnose disease.)

The divestiture was probably a surprise to many since Abbott is a leader in this $24 billion market that grows 6% to 8% a year, and its in vitro diagnostics business, including point-of-care, is expected to generate net sales of about $2.7 billion in 2006, according to Joe Hogan, president/CEO of GE Healthcare.

Thus, in a conference call, Miles White, Abbott’s CEO and chairman, provided a rationale for the move in terms of its recent changes.

In the 1980s and 1990s the core laboratories and diagnostics market was one where the most advanced assays were run on low-cost bench-top instrumentation, White said. But over the past decade Abbott has seen fundamental changes in the nature of this market.

“Today, it’s a market driven by automated, capital-intensive, mainframe systems that are integrated with institutional IT systems,” White said. “These capital-intensive technologies require a financing, sales and service infrastructure more suitable for large capital equipment manufacturers such as GE.”

White said that Abbott also considered its five strategic objectives — strategic fit, ability to generate high growth, capability for innovation and differentiation, ability for high profit and high returns, and potential to generate strong cash flow, White said.

“And so when we considered the evolving dynamics of the core laboratory diagnostics market against the backdrop of our strategic goals, it was clear to us that a large capital equipment manufacturer would be a better fit to take this business to the next level,” he said.

White said Abbott did not make the decision lightly. “It was a decision that we carefully considered, given our long-standing legacy and commitment to this market. We would only consider this divestiture if it was the right situation for this business and we found that ideal situation with GE, one of the world’s largest and most respected companies with a leading imaging and healthcare systems [business] that made for a compelling strategic fit.”

In a separate teleconference, GE also said it sees the acquisition as a good fit for its company. “This is an amazing amount of technology,” said Joe Hogan, president/CEO of GE Healthcare. “T hat’s why it fits so much better in a GE portfolio because we have that capability. We have 4,000 software engineers . . . as this business evolved within the Abbott portfolio it wasn’t in their core competency because they had more biochemistry and organic sciences capability.”

Hogan said GE had been eyeing the possibility of acquiring Abbott’s core diagnostics offerings for about five years.

“Overall this is the world’s premiere in vitro diagnostics business,” Hogan said. “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.”

“This acquisition is consistent with GE’s strategy to invest in high-technology global infrastructure businesses that deliver strong top-line growth, earnings expansion and expanded margins,” Jeffrey Immelt, GE CEO and chairman, said in a company statement. “Abbott’s diagnostics business is the premier platform in this industry and fits very well with our 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.”

Financially speaking, White said the $8.13 billion purchase price gives Abbott about $6 billion of after-tax cash, and the company will most likely use the bulk of that to pay down debt.

Abbott said that the deal is expected to be neutral to its earnings-per-share in 2007 before specified items and accretive thereafter.

In case investors are wondering, White said, the company does not have any properties or businesses on its radar screen for any other upcoming acquisitions. But, he added, “We’re always evaluating the landscape and continuing to look for the best ways to build a high growth, high margin business.

“The most important thing to understand is we are and will remain a diverse broad-based company. That has not changed and it won’t,” White said. “What has changed over the last seven to eight years is the strength of Abbott’s diversification, specifically the mix of our cash flows and the diversification of our long-term earnings growth drivers.

“[This transaction] is one of several transforming changes that we’ve made to strengthen our diverse framework in a way that aligns Abbott for higher growth, higher margins and higher returns, in businesses that are driven by continual medical innovations.”

The transaction, which is subject to regulatory approvals and other customary conditions, has been approved by the boards of both companies and is targeted to close in the first half of this year.