Du Pont puts Medical Products uniton block to pay for stock repurchase

June 7, 1995

Sale could impact Du Pont's web of alliancesMedical imaging industry consolidation took another turn lastmonth when film and PACS vendor Du Pont announced its decisionto sell its medical products businesses, the largest of whichis Du Pont

Sale could impact Du Pont's web of alliances

Medical imaging industry consolidation took another turn lastmonth when film and PACS vendor Du Pont announced its decisionto sell its medical products businesses, the largest of whichis Du Pont Diagnostic Imaging. The Wilmington, DE-based diagnosticimaging business generates about $500 million in annual revenuesthrough the sale of Ultravision and Microvision screen-film systems,as well as Linx electronic imaging equipment.

Du Pont's other three businesses on the auction block are InVitro Diagnostics, which has annual sales of $335 million; NewEngland Nuclear, with sales of $110 million; and Sorvall Centrifuges,with annual revenues of $75 million.

The money from the sale of these businesses will help pay forthe purchase of Du Pont stock from Seagram, which is selling itsstake in Du Pont to raise money for an investment in entertainmentfirm MCA. Shortly after Seagram's decision was made public, DuPont indicated that it would sell $2 billion in assets to helpfinance the purchase of its stock, and on May 19 the company disclosedthat the Medical Products businesses would be among those assets.

Industry analysts believe the asking price of the businessescould total about two times annual revenues, but the actual saleprice will likely be $750 million to $800 million.

Not included in the sale will be Du Pont's interest in Du PontMerck Pharmaceutical Company, a 50-50 joint venture between DuPont and Merck. Sales from that partnership have boomed in recentyears, driven largely by growing demand for nuclear cardiologyprocedures. The nuclear medicine procedures have boosted salesof the joint venture's thallium-based Cardiolite agent, as wellas its I.V. Persantine product, which simulates the effect ofexercise on heart muscles.

Du Pont Diagnostic Imaging has much to offer a potential buyer,including an expanded position in the medical imaging market,according to Du Pont spokesperson Jayne Persico.

"We have existing product lines for conventional and electronicimaging," she said. "This could complement the corebusiness (of a buyer) or offer them access to the radiology marketplace."

Du Pont acknowledges that it is improbable that all four businesseswill be picked up by a single buyer. Individual buyers are morelikely to be found for the separate units.

"I could conceivably see it being split up, dependingon what the buyer wants to add to its portfolio," Persicosaid.

Impact on alliances. Although no buyer is yet in sight, theprospect of the sale of these businesses raises a number of issuesfor Du Pont's customers and allies. A major purchaser of Du Pontproducts is SunHealth Alliance of Charlotte, NC, which has signedup many of the 280 hospitals in its alliance to buy Du Pont filmexclusively.

"They're assuring us that everything is going to be okay,"said William Otto, senior vice president at SunHealth, who dealsspecifically with materials management for the alliance of hospitals."All I can do at this stage is work with them and see whathappens."

SunHealth has a lot at stake. In January the alliance establisheda "committed buying program" for several categoriesof products, one of which is film. As part of this program, participatinghospitals receive a significant discount from Du Pont in exchangefor volume purchases.

"Our main concern is the continued existence of Du Pontfilm," said a source inside SunHealth. "Hopefully, whoeverbuys it will continue production."

PACS developer ISG Technologies of Mississauga, Ontario, hasbeen working with Du Pont for the last two years in the developmentof workstation software and hardware technology (SCAN 4/20/94).The technologies are being integrated with Du Pont's existingand developing Linx network offerings, providing solutions applicablespecifically to ICU and CCU systems.

The Canadian company received no advance notice of the decisionto sell the medical products businesses, said Thomas Ekers, vicepresident of corporate development at ISG. Ekers expects, however,to continue the collaborative relationship with Du Pont, regardlessof the purchaser.

"We would like to be considered an asset (for the sale)and we would expect that we would continue to support the neworganization," Ekers said.

Speculation within the industry as to the identity of the prospectivebuyers of the diagnostic imaging business has focused on a handfulof companies. Two of the best fits are GE Medical Systems andEastman Kodak. GE has demonstrated an interest in expanding itsrevenues through means other than equipment sales, as shown byits move into multivendor service.

Film would expand GE's offering into the consumables side.Although margins are small in this segment, consumables salescould be parlayed into an expanded relationship with group purchasingorganizations, some of which, like SunHealth, have strong tiesto Du Pont. The Linx product line would also give GE an opportunityto bolster its position in electronic imaging.

The Du Pont diagnostic imaging business would fit the strategicorientation of Kodak, which has recently made its commitment todigital imaging a priority. Du Pont films could fit easily intoexisting distribution efforts for Kodak films. The Linx productline could be merged with Kodak's electronic imaging products,as was done several years ago with the products obtained fromVortech.

Other possible buyers include Johnson & Johnson, AT&T,3M, Hewlett-Packard and IBM.

Ekers of ISG believes the sale of the business could be goodfor everyone involved, as long as the purchaser has a strong commitmentto medical imaging.

"Being buried as part of a large chemical company wasn'tnecessarily in Du Pont's or medical imaging's best interests,"Ekers said. "We are all hoping and expecting that whoeverbuys this business will have a clear sense of what they want toaccomplish with it."