Agilent joins with Philips ATL to form billion-dollar ultrasound company

August 8, 2001

Nine months after the announcement—a full year after negotiations began—Royal Philips Electronics acquired the Healthcare Solutions Group of Agilent Technologies. The two were joined officially on Aug. 1, marking the end of a long and arduous

Nine months after the announcement-a full year after negotiations began-Royal Philips Electronics acquired the Healthcare Solutions Group of Agilent Technologies. The two were joined officially on Aug. 1, marking the end of a long and arduous process punctuated by quick regulatory approval from European authorities but painstakingly slow review by U.S. regulators. The uncertainty surrounding the deal played into the hands of Philips’ and Agilent’s competitors, company executives said.

The cash deal, valued at two billion euros (U.S. $2.233 billion), creates the largest ultrasound company in the world, according to Philips executives. But big is not necessarily enough, according to Tim Mickelson, CEO of the newly created conglomerate. The company needs to focus on its two major installed bases, general imaging and cardiology. Together they must perform as well as or better than Agilent and ATL did separately.

“We want to operate as one big company, but we also want to remain focused on those two market segments,” said Greg Petras, Philips ATL’s new vice president and general manager of the new company’s cardiac ultrasound business. “We won’t get caught treating the whole world as one type of ultrasound customer.”

Staff from the two former competitors had just 60 days to get to know each other before the marriage was consummated. Although European authorities signed off on the deal early this year, the U.S. Department of Justice (DOJ) held back its approval until May 30. After that date, Petras, formerly Agilent’s vice president and general manager of its Imaging Systems Group, began coordinating meetings between the groups on each side of the aisle.

“We started these groups talking together, and they came up with some unique and ingenious ways of sharing information and technology to improve our products’ performance,” he said.

The long-term goal will be to create a new superpremium ultrasound platform combining the technological strengths of both companies. This platform, tentatively scheduled for development within five years, will replace the HDI 5000, which has been the mainstay of ATL, and Agilent’s flagship Sonos 5500.

“Right now we can provide customers with the product (either the HDI 5000 or Sonos 5500) that they think best suits their needs,” Petras said. “In the long run, we will be able to provide customers that have either of these systems with the ability to migrate to a common platform.”

This future platform will probably be PC-based, he said. Systems optimized for general imaging and for cardiology will have unique elements, but the majority-perhaps 70%-of the architecture will be shared.

“In a three- to five-year time frame, we will create a whole new platform that takes the best of both worlds and integrates them,” Petras said.

The current Sonos and HDI platforms will also change. Over the next year, engineers from the two once-separate groups will begin mixing and matching the best features of both platforms, introducing them into each other’s product lines.

“The first order of business is to see what we can beg, borrow, and steal from each other to make our products better in the short term,” he said. “We then will look to the future, when we can construct something that will really wow the marketplace.”

Mickelson will lead this effort from Bothell, WA, as ATL’s chief executive officer. He will focus particularly on the general imaging segment. Petras will be his second in command, serving as general manager of the echocardiography program in Andover, MA, where Agilent HSG had been based. Although Mickelson outranks Petras, the two are nearly corporate equals.

“Greg could just as well have my position and title, and I could be the general manger in Bothell,” Mickelson said. “We are just trying to make sure we have a lean and focused organization that doesn’t have high-level people who don’t need to be there.”

Communications is the priority for the newly joined companies. Soon after the deal was signed, Mickelson and Petras began reaching out to employees and customers, explaining the vision of the newly formed company. They plan to use every communications tool they can: e-mail, Web access, snail mail, telephone. But personal meetings with individuals and groups will be the backbone of the effort.

“If people don’t know the answer, they start speculating on what it could be,” Mickelson said. “Our task is to make sure that we get the answers to them, and if we don’t know the answers, to work with the right people to come up with them.”

Mickelson and Petras have some lost ground to recapture. Over the past nine months, the customer bases of both ATL and Agilent have eroded. Competitors capitalized on the state of limbo in which the two companies were locked.

“During the time the Department of Justice was reviewing our case, competitors were certainly trying to take advantage of our situation,” Mickelson said. “We knew they were going to take this approach, but now that is behind us.”

The uncertainty vanished at the end of May, when the DOJ approved the deal. That decision kicked off a program called “carve out hand out” by which the medical business was extracted from Agilent in preparation for its sale to Philips. The first step was to reengineer the company to stand on its own. As with any corporate division, HSG was dependent on its parent’s infrastructure. A critical service was provided by Agilent’s centralized information technology which includes both hardware and support staff. Agilent IT controlled everything from order processing to factory scheduling and product delivery to financial accounting and inventory control.

“The Andover campus does not have any local IT equipment or staff, so when we carved this part out of Agilent, naturally Agilent couldn’t give us the systems or people we needed to run the company,” Mickelson said.

The answer was to establish service agreements between HSG and Agilent. These agreements will provide critical services, such as IT, until Philips is ready to kick in. Company executives hope to wean themselves from Agilent within 12 months. In the meantime, the newly formed ultrasound company is free to attack the market aggressively. The way to do that, according to Petras, is to demonstrate how the customer will benefit from the merger.

“We have to make people understand that a lot of benefits will come to both cardiology and general imaging customers because we are a big company,” Petras said. “They will come from sharing information across ultrasound capabilities to produce value-driven, customer-associated results.”