Medical Device Daily Associate Managing Editor
In what is one of the largest device sector deals to emerge this year, Royal Philips Electronics (Amsterdam, the Netherlands) reported that it has agreed to acquire Intermagnetics General (Latham, New York) for $27.50 per share or a total equity value of about $1.3 billion (EUR 1 billion) to be paid in cash upon completion.
The board of directors of Intermagnetics has unanimously approved the proposed transaction. Completion of the transaction is subject to regulatory approval, to the terms and conditions of the merger agreement and to the approval of Intermagnetics' shareholders.
Intermagnetics makes high-field superconducting magnets used in MRI systems, and is viewed as one of the technological innovators in this market. It also provides specialized MRI-compatible patient monitoring devices and radio frequency (RF) coils that are predominantly supplied to hospitals.
Philips said the acquisition will strengthen its position in the key MRI market. The company added that the buy will allow it to “significantly rationalize” its supply chain, to enhance its competitive position and to participate in the fast growing market for RF coils.
This latest buy is one in a recent string for Philips. In 2005, the company bought Stentor (Brisbane, California) for $280 million to strengthen its position in the fast-growing market for clinical information technology (Medical Device Daily, Sept. 30, 2005). It also recently acquiredLifeline Systems (Framingham, Massachusetts) for $750 million to strengthen its consumer health business (MDD, March 23, 2006).
While the company has been on a bit of a buying spree, executives at the company have publicly stated that the M&A route is not its preferred method of adding to the company's portfolio.
At the Frost & Sullivan Executive Summit meeting held this past March in San Francisco (MDD, March 22, 2006) Paul Smit, senior vice president, strategy and business development for Philips Medical Systems (Best, the Netherlands/Andover, Massachusetts), said the company's culture “is to go with an alliance first, or a joint venture.” He said Philips looks at mergers and acquisitions as “the last and most difficult path to building value.”
That being said, Smit noted that when Philips does look at a company as a possible acquisition target, “we like it to be complementary to what we do. We look at companies that serve the same customers as we do, but with a different technology.”
It would appear that this latest buy fits in nicely with the company's buying strategy.
“Through this acquisition, we will greatly strengthen the overall performance and innovation capability of our MRI business,” said Jouko Karvinen, a member of the Philips board of management and CEO of the Medical Systems business. “In the short term, we expect to gain equipment market share and to grow the installed base by expanding our product offerings with an accelerated innovation rate and a lower cost supply chain. Intermagnetics' leading positions in the high-growth and high-value markets of RF coils and MRI patient monitoring will enable us to build unique solutions for our customers,” he added. “In the longer term, we believe that MRI technology will become important in molecular imaging, therefore, positioning us well for the future.”
Philips said it also recognizes the benefits offered by the breakthrough technology of SuperPower, Intermagnetics' Energy Technology subsidiary, and will actively consider the most effective way to achieve its potential.
The company said it anticipates the Intermagnetics transaction to be accretive to its operating margin towards the end of 2007. There will be a one-time charge of about EUR 85 million ($107.25 million) related to in-process R&D expenses, integration of supply chain and various purchase accounting items, taken in the latter half of 2006. For the last four quarters ended Feb. 26, Intermagnetics' revenues were $304 million.
Intermagnetics employs about 1,150 people. Its headquarters in Latham, New York, will become the global headquarters of Philips' enlarged Magnetic Resonance business.
Glenn Epstein, chairman and CEO of Intermagnetics, will join Philips to lead the MRI business and the integration process. He will report to Steve Rusckowski, CEO of Philips Medical Imaging Systems.