Medical Device Daily
Eastman Kodak (Rochester, New York) will be able to sharpen its focus on consumer and professional imaging and the graphic communications industry now that it has signed an agreement to sell its Health Group to Onex Healthcare Holdings (Toronto), a subsidiary of Onex Corporation.
Kodak will sell its Health Group to Onex for up to $2.55 billion. The price is composed of $2.35 billion in cash at closing, plus up to $200 million in additional future payments if Onex achieves certain returns with respect to its investment. If Onex Healthcare investors realize an internal rate of return in excess of 25% on their investment, Kodak will receive payment equal to 25% of the excess return, up to $200 million.
In May — on the heels of its sixth consecutive quarterly loss — Kodak said it was exploring strategic alternatives for its Health Group, including the possible sell off of the business (Medical Device Daily, May 5, 2006).
Robert Salmon, a spokesman for Kodak told Medical Device Daily, that at the time of the May announcement the company had decided that “in order to be truly successful and realize growth and really take the business to a whole [new level] would require an investment of resources it didn’t have.”
So, the company decided to sell its Health Group to Onex, which Salmon said has a track record of being able to develop and grow its business acquisitions. “We joined forces with an organization that has the resources to grow the business,” he said. He said that with deal close the Health Group will operate as a stand-alone company.
The companies said the sale will close in the first half of this year.
Because of tax-loss carry forwards, Kodak expects to retain the vast majority of the initial $2.35 billion cash proceeds. The company plans to use the proceeds to fully repay its roughly $1.15 billion of secured term debt. Other potential uses of the cash proceeds are under review and will be discussed at Kodak’s investor meeting, scheduled for February 8.
Included in the sale are manufacturing operations focused on the production of health imaging products, as well as an office building in Rochester. About 8,100 employees of the Health Group will continue with the business following the closing.
Kodak said that Kevin Hobert, president of Kodak’s Health Group, would become CEO of the new Health Group entity.
“We have done extensive transition planning to ensure that, beginning on day one we will have the resources and a comprehensive plan to maintain our high level of service to customers,” he said. “We have great products and a great team to support those products.”
Kodak’s Health Group — with revenue of $2.54 billion for the last 12 reported months (through Sept. 30, 2006) — develops information technology, molecular imaging systems, medical and dental imaging, including digital X-ray capture, medical printers, and X-ray film.
Kodak said the deal does include the area of the business that sells X-ray film and digital X-ray machines into the non-destructive testing market, the molecular imaging systems business, and the dental business.
Onex is one of Canada’s largest corporations, with annual revenues of about C$20 billion and consolidated assets of roughly C$20 billion. It has global operations in healthcare, service, manufacturing and technology industries. The healthcare operations include emergency care facilities and diagnostic imaging clinics.
“Kodak’s Health Group is a business with significant market presence and intellectual property assets,” said Antonio Perez, Kodak’s CEO and chairman. “This sale maximizes shareholder value by obtaining a full and fair valuation for this business, and allows Kodak to increase its financial flexibility. We now plan to focus our attention on the significant digital growth opportunities within our businesses in consumer and professional imaging and graphic communications.”
The Health Group raised its prices on all medical imaging film and related supplies twice late last year, citing increasing costs of raw materials (MDD, Dec. 20, 2006). But Perez said Onex has the financial resources to ensure its continued success. Onex, he said, “understands the health industry.”
Onex said it decided to acquire Kodak’s Health Group because the business has a “great track record in delivering innovative solutions for customers around the world.”
“Kodak’s Health Group has an exceptionally strong management team and we share this team’s vision for the future. We recognize that growth is critical and that digital technology is the future, and we believe strongly that customers and employees must continue to be a top priority,” said Robert Le Blanc, an Onex managing director.
Goldman, Sachs & Co. acted as financial advisor to Kodak, and Sullivan & Cromwell provided legal counsel.
In other dealmaking news: International Stem Cell (ISC; Oceanside, California), an early-stage stem cell therapeutics company, said that it completed a share exchange with BTHC III. As a result of the share exchange, ISC’s shareholders were issued 33,111,502 shares of BTHC’s common stock in exchange for their shares of ISC. As a result, ISC became a wholly-owned subsidiary of BTHC.
Immediately preceding the transaction, ISC closed a private placement of its capital stock whereby it received about $11.2 million in gross proceeds.
The combined company will be headquartered in Oceanside and will operate under the name International Stem Cell Corporation, adopting both ISC’s business strategy and that of its subsidiary, Lifeline Cell Technology (Walkersville, Maryland). The combined company will be headed by ISC’s current management team.
In connection with the transaction, Kenneth Aldrich, chairman and co-founder of ISC, was appointed to the board of BTHC and will serve as chairman. Jeff Krstich, CEO of ISC, and William Adams, co-founder and CFO of ISC, were appointed CEO and CFO of BTHC, respectively. Jeffrey Janus, president of ISC and co-founder of Lifeline, was appointed president of the registrant and will remain CEO of Lifeline.
ISC is focused on developing therapeutic and research products.