Philips bids $1.3 billion for MR magnet supplier

June 16, 2006

One by one, magnet suppliers have fallen into the corporate maws of MR vendors. First, in 2000, GE bought the clinical MR side of magnet maker Magnex Scientific. Three years later, Siemens bought the equity of its partner, Oxford Instruments, in their joint-venture partner Oxford Magnet Technology. A year after that, Varian purchased the remainder of Magnex Scientific, which had concentrated on making superconducting, including ultrahigh-field, magnets. Yesterday, Philips announced a play for its longtime magnet supplier, Intermagnetics General.

One by one, magnet suppliers have fallen into the corporate maws of MR vendors. First, in 2000, GE bought the clinical MR side of magnet maker Magnex Scientific. Three years later, Siemens bought the equity of its partner, Oxford Instruments, in their joint-venture partner Oxford Magnet Technology. A year after that, Varian purchased the remainder of Magnex Scientific, which had concentrated on making superconducting, including ultrahigh-field, magnets. Yesterday, Philips announced a play for its longtime magnet supplier, Intermagnetics General.

Philips and Intermagnetics have signed a definitive agreement that calls for an all-cash payment of $1.3 billion, or $27.50 per share of Intermagnetics stock. Intermagnetics' board of directors has unanimously approved the proposed transaction. Completion is subject to regulatory approval, due diligence, and the approval of Intermagnetics' shareholders.

The immediate impact was a nearly 30% bump in Intermagnetics' stock price to just under $27 compared with the previous day's closing. It was not all that big a jump, however, in the context of the company's 52-week high, which topped $31 just four months ago. Royal Philips stock edged up slightly on news of the deal.

Jouko Karvinen, CEO of Philips Medical Systems and a member of the Philips board of management, framed the acquisition as having positive short- and long-term benefits.

"In the short term, we expect to gain equipment market share and to grow the installed base by expanding our product offerings with an accelerated innovation rate and a lower cost supply chain," he said. "In the longer term, we believe that MR technology will become important in molecular imaging, thereby positioning us well for the future."

In total, Intermagnetics generated $304 million last fiscal year, which ended Feb. 26. More than half its sales were to Philips. If the deal to acquire Intermagnetics goes through, Philips will move its global headquarters for MR to Intermagnetics' headquarters in Latham, NY. Intermagnetics chair and CEO Glenn H. Epstein will join Philips to lead the MR business and the integration process. He will report to Steve Rusckowski, CEO of Philips Medical Imaging Systems.

The move to acquire Intermagnetics should not have taken anyone by surprise. Philips had been progressively tightening its relationship with Intermagnetics until, in May 2003, the company struck an exclusive supplier agreement, taking the unprecedented action of putting Intermagnetics in charge of its magnet inventory (DI SCAN, May 28, 2003, Intermagnetics wins contract to supply Philips with MR magnets). The long-term agreement was structured with automatically renewing options that created one of the tightest supply links in the medical imaging industry.

Clearly the main draw for Philips to acquire Intermagnetics is the company's MR magnets. But the firm is much more than that. Its acquisitions over the past few years have brought MRI peripherals, including functional MRI devices, and patient monitors into the fold, buoying its own portfolio of radiofrequency surface coils.

Then there are the other business units within the company, particularly its SuperPower subsidiary, which develops superconducting wire. Intermagnetics has raised the possibility in the past of spinning this company off, and doing so now would seem in line with Philips strategies.

Before the Dutch company purchased ATL Ultrasound in 2001, ATL was compelled to spin off its handheld ultrasound business into a publicly traded company. SonoSite reportedly did not fit Philips' strategy for future growth.

No one at this point is ready to guess what will become of the "extraneous" pieces accompanying Philips' prized superconducting magnet business. Integrating the MR-related businesses makes sense. Karvinen specifically addressed the advantages of keeping these products in Philips' MR portfolio, speculating that Intermagnetics' offerings in RF coils and MR patient monitoring will provide "unique solutions for our customers."

Holding onto Intermagnetics' power-related pieces, however, is more difficult to rationalize. Referring to Intermagnetics' SuperPower energy technology subsidiary, he said the company would "actively consider the most effective way to achieve its potential," leaving the door open for some future divestment.