Comments by Bayer chairman prompt renewed speculation of Agfa spin-off

December 27, 1995

MEBV move may affect systems connectivityWill Agfa be the next medical imaging film vendor to be divested?Agfa officials say that parent Bayer AG of Germany has no definitiveplans to divest the Belgian company, but speculation heated upagain

MEBV move may affect systems connectivity

Will Agfa be the next medical imaging film vendor to be divested?Agfa officials say that parent Bayer AG of Germany has no definitiveplans to divest the Belgian company, but speculation heated upagain last month after comments made by Bayer chairman ManfredSchneider.

In an interview published in November in the Financial Timesof London, Schneider was reported as saying that Bayer intendedto use a public offering to spin off Agfa into a separate companyin the next two years. Bayer made the decision after "failingto find a buyer for the troubled film business," accordingto the article.

It was not the first time Schneider has been quoted as indicatingthat Bayer is looking to divest Agfa. Earlier this year, Schneidertold a group of European reporters that Bayer would sell Agfa"if the price were right" (SCAN 7/19/95).

There are several reasons why Bayer might be interested indivesting Agfa. Agfa's profit margins are not at the levels Bayerenjoys from its other businesses, and as Agfa moves into digitalimaging there are fewer synergies between Agfa and Bayer. Agfaofficials in the U.S., however, say that there are no plans fora divestiture.

"There is no plan under way at this moment to sell thecompany," said Dionn Tron, vice president of corporate communicationsfor Agfa's U.S. subsidiary in Ridgefield Park, NJ. "The speculationwill continue as Agfa moves into digital imaging, because we havelittle synergy with Bayer."

Schneider's comments were made in a conversation with an individualreporter following Bayer's shareholder meeting, Tron said, andwere not part of an official Bayer announcement.

While Agfa is not as profitable as some of Bayer's other businesses,the company has a 3% to 5% profit margin, comparable to otherlarge independent companies, according to Tron. In addition, Agfais a market leader in several digital imaging segments, includingthe PACS market, where it is one of a handful of companies scoringlarge filmless-hospital contracts.

Despite its digital leadership, however, Agfa is being affectedby the same factors that have prompted other companies to divesttheir medical imaging film operations. Managed care has hammeredprofit margins throughout the healthcare industry, but film companieshave been particularly hard hit. 3M cited low profit margins asone reason why it decided to spin off its medical imaging operationsinto a separate company, while Du Pont probably would have chosento retain its medical business were its profits higher.

Agfa's reliance on German and Belgian manufacturing plantsputs additional pressures on profits due to the appreciation ofthe German mark, which forces the company to either raise pricesabroad or accept reduced margins.

Agfa has begun a corporate restructuring of its European operationsdesigned to make the company more efficient, Tron said. She doesnot expect Agfa's U.S. business to be affected by the moves becauseof the subsidiary's ongoing emphasis on cost-cutting.

"We have been downsizing for the past four years,"Tron said. "They have just begun to do that in Europe."

In a move that may be related to the restructuring, Agfa announcedin November that it is consolidating its Matrix Europe BV (MEBV)office from Amersfoort, the Netherlands, to Agfa's main headquartersin Belgium. The office develops connectivity interfaces betweendevices manufactured by OEMs and Agfa medical imagers and Impaxproducts.

Agfa portrayed the move as one that would strengthen its connectivityoperations and improve its ability to respond to the needs ofits OEM partners. Several Agfa insiders, however, say that fewof the office's two dozen employees plan to make the move to Belgium.If that happens, it could affect Agfa's connectivity efforts asit brings new employees up to speed, the sources said.

In other Agfa news, the company said it has appointed JohnGlass to the position of vice president of sales for medical systems.Glass is a former Kodak executive who joined Agfa in 1993.