Cape Times

Philips boosts its health-care business

- 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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