By Robin van Daalen
AMSTERDAM--Royal Philips NV is buying U.S. medical-imaging
company Volcano Corp. for around $1 billion, its largest
acquisition in years, as it aims to boost the performance of its
healthcare businesses ahead of a stand-alone future.
The Dutch company, whose products range from light bulbs to
high-end medical kit and coffee makers, said on Wednesday it had
won support from Volcano's management for an $18 per share cash
offer, putting the total value of the transaction at $1.2 billion,
including debt.
"Volcano's impressive and unique product portfolio is highly
complementary to our strong offering in live image-guidance
solutions, creating an opportunity to accelerate the revenue growth
for our image-guided therapy business to a high single-digit rate
by 2017," Philips' Chief Executive Frans van Houten said.
The acquisition of Volcano is Philips' largest since 2007 and
comes as the company plans to merge its health-care and
consumer-electronics divisions into a single company. While this
healthcare technology business will form the core of Philips's
business going forward, the lighting business will be spun off as
early as 2016.
Volcano is the market leader in making flexible tubes that can
produce ultrasound images of blood vessels as well as consoles to
measure blood flow. The San Diego, Calif.-based firm, which aims to
make products to help treat cardiovascular diseases in less
invasive ways, reported sales last year of about $400 million.
Philips said the acquisition--which analysts said is expensive,
but makes strategic sense--will give it a EUR1.5 billion ($1.87
billion) share of the growing EUR4 billion market for image-guided
therapy. While Volcano's operations are currently lossmaking,
Philips expects to grow margins in the newly formed business group
to 20% by 2017. It declined provide margins for the combined
businesses at the moment.
"We think that together we can grow faster, helped by synergies
in technology, sales and marketing," Mr. van Houten said, adding
further benefits can come from cost savings and improving
efficiency.
Overall, Philips is aiming for an operating margin of 16% to 17%
for its healthcare business in 2016.
The health-care business, which competes with General Electric
Co. and Siemens AG, reported some EUR10 billion in sales in 2013,
and the consumer-electronics business posted EUR5 billion. The
lighting business made EUR8 billion, including the revenue of a
components business that Philips is planning to spin off
separately.
In mature markets, which still make up the majority of global
health-care spending, hospitals and other care providers are
increasingly focused on boosting efficiency amid mounting pressure
to rein in medical spending. As a result, Philips has shifted its
focus to offering more consulting and software services, rather
than just delivering health-care systems such as CT and X-ray
scanners.
Apart from weak demand and growing competition, Philips was
confronted with a series of setbacks this year and earnings took a
hit from problems at one of its U.S. health-care plants. In July,
Mr. van Houten took over running the healthcare business from top
executive Deborah DiSanzio as he felt the business wasn't adapting
quickly enough to changing market demands.
Since Mr. van Houten took the helm in 2011, Philips has been
cutting costs and focusing on fewer activities to boost
performance. Some analysts argue that if the company fails to
further boost performance, the separated businesses could become
takeover targets.
Write to Robin van Daalen at Robin.VanDaalen@wsj.com
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