Philips boosts its health-care busi­ness

The Star Early Edition - - INTERNATIONAL - Phil Ser­afino and An­drew Noël

ROYAL Philips’s $1.7 bil­lion (R21.93bn) deal to buy Spec­tra­net­ics Cor­po­ra­tion, a US maker of de­vices to treat car­diac dis­ease, shows the Dutch com­pany is mov­ing more ag­gres­sively to bol­ster its grow­ing health-care busi­ness.

Philips would of­fer $38.50 a share in cash for the Colorado Springs-based com­pany, ac­cord­ing to a state­ment yes­ter­day.

The price is 27 per­cent above Spec­tra­net­ics’ clos­ing level on Tues­day. Philips also will buy back as much as €1.5bn (21.76bn) of its own stock to off­set share di­lu­tion from an em­ployee in­cen­tive pro­gramme.

Philips chief ex­ec­u­tive Frans van Houten has been on the hunt for ac­qui­si­tions to fuel ex­pan­sion in health care, al­ready the com­pany’s largest busi­ness.

Af­ter spin­ning off a light­ing di­vi­sion last year and sell­ing an­other called Lu­mileds, the ex­ec­u­tive has made the mar­ket for med­i­cal equip­ment and ser­vices the com­pany’s fo­cus. Spec­tra­net­ics was on Philips’s radar “for quite a while,” he said yes­ter­day, adding that, to his knowl­edge, Philips was the only suitor.

“With the on­go­ing sell-down of light and the soon-to-be-sold ma­jor­ity in Lu­mileds, Philips is able to make the next move in its health-care strat­egy,” said Mar­cel Achter­berg, an an­a­lyst at De­groof Peter­cam. “Ac­qui­si­tions should boost the growth rate.”

Philips dropped 1.1 per­cent to €32.18 at 12.27pm yes­ter­day in Am­s­ter­dam, where the com­pany is based.

The stock has re­turned about 16 per­cent this year in­clud­ing div­i­dends, com­pared with a 9.8 per­cent re­turn for the AEX In­dex.

Spec­tra­net­ics is grow­ing at a dou­ble-digit per­cent­age rate and fore­casts sales this year of $293 mil­lion to $306m, ac­cord­ing to Philips. The US com­pany’s so-called im­age-guided ther­apy de­vices to clear blocked ar­ter­ies pro­vided an al­ter­na­tive to stents, which were metal tubes widely used in car­diac pro­ce­dures, Van Houten said. One prod­uct, laser atherec­tomy catheters, treats block­ages with laser en­ergy, Philips said.

“This is a nascent busi­ness, one which can re­place stents, which is a very large mar­ket,” Van Houten said, adding that Spec­tra­net­ics was seek­ing ap­proval for its catheters from the US Food and Drug Ad­min­is­tra­tion, fol­low­ing clin­i­cal tri­als to prove their ef­fec­tive­ness in treat­ing peo­ple with coro­nary con­di­tions. While pay­ing a high price for Spec­tra­net­ics, Van Houten said that he was pre­pared to make ad­di­tional ac­qui­si­tions of a sim­i­lar size as part of a wider growth strat­egy.


The pur­chase val­ues the un­prof­itable com­pany at about 7.2 times rev­enue, com­pared with an av­er­age mul­ti­ple of 5 times for sim­i­lar deals.

The US car­diac de­vice com­pany will add to Philips’s med­i­cal prod­ucts that al­ready in­clude scan­ners and ul­tra­sound ma­chines.

Separately, Philips said its buy­back would cover about 46.1 mil­lion shares at the cur­rent stock price.

The com­pany aimed to bal­ance its cap­i­tal al­lo­ca­tion among in­vest­ments in growth, main­tain­ing an ef­fi­cient bal­ance sheet and pro­vid­ing re­turns to share­hold­ers, Van Houten said.

Both the Spec­tra­net­ics deal and the buy­back were planned be­fore re­ports that ac­tivist hedge fund Third Point had bought Philips shares, Van Houten said.

The chief ex­ec­u­tive said he has no knowl­edge of the sit­u­a­tion, and there’s been no con­tact with the fund.

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