Philips makes billion-dollar bid for Marconi Medical

July 8, 2001

Fireworks exploded across Europe as well as the U.S. on July 4, with the announcement that Royal Philips Electronics had agreed to acquire Marconi Medical Systems for $1.1 billion. The cash deal will catapult Philips into the top ranks of the CT market,

Fireworks exploded across Europe as well as the U.S. on July 4, with the announcement that Royal Philips Electronics had agreed to acquire Marconi Medical Systems for $1.1 billion. The cash deal will catapult Philips into the top ranks of the CT market, while improving its already strong presence in MR and nuclear medicine, according to the company. The purchase, if completed, will also include Marconi’s Health Care Products business, although sources say this division will likely be spun off.

Philips expects the acquisition to be final by the fourth quarter of 2001. Marconi imaging equipment will then be rebranded, according to Philips spokesperson Ben Geerts.

The two companies picked a seemingly unusual time to announce the deal, but Geerts noted that such an observation was unique to the U.S.

“Our policy is that as soon as we conclude an agreement, we announce it,” he said. “We concluded this agreement very early on July 4.”

Fred Parks, president of Marconi Medical, sent a voicemail message about the agreement to employees around the world on July 4. That day, Hans Barella, president of Philips Medical Systems, prepared to fly to Marconi U.S. headquarters in Cleveland for meetings on July 5.

“They (Philips) are as excited about this as we are,” said Rob Spademan, vice president of marketing and communications for Marconi Medical Systems.

The $1.1 billion sales price was lower than might be expected, as such acquisitions typically command a price at least equal to annual gross revenues. The price offered by Philips was only 70% of gross revenues. Sweetening the deal, however, is Philips’ agreement to purchase $150 million in communications equipment from Marconi over the coming five years.

The Marconi purchase is the latest step in Philips’ ambitious acquisition campaign to reach the top rungs of the medical equipment industry. The company has spent nearly $5 billion over two years expanding its medical equipment lines, including the pending $1.7 billion purchase of Agilent Technologies.

At this year’s annual meeting of the European Congress of Radiology, Philips executives clearly indicated they were gunning to be number one in medical equipment. The Marconi purchase promises to put the company into second place with a chance to give GE Medical Systems a serious challenge, although no further acquisitions are planned, according to Philips.

Marconi began shopping its medical systems business in April as part of a corporate restructuring plan. Siemens and Kodak are believed to have been among the prospective suitors, although neither company would confirm reports. Upon hearing of the deal between Philips and Marconi, Michael J. McQuade, president of Kodak Health Imaging, wished the two companies luck, noting that both are major business partners with Kodak.

“This is a transaction between those two companies, and they have to determine whether the economics makes sense and whether it is a good move for them,” McQuade said. “We are excited, if they can put something together.”

Erich Reinhardt, president and CEO of Siemens Medical Solutions, described the Q4 target for completing the sale as “ambitious,” citing the still unfinished Agilent deal. The longer the better for Siemens, Reinhardt indicated.

“The acquisition presents an interesting integration task and it is possible that we may gain some market share during that period of uncertainty,” he said.

Oddly, the deal could lead to a partnership between Philips and Siemens. Elscint and Siemens teamed up several years ago to engineer different components for their respective multislice CT scanners. Marconi Medical Systems replaced Elscint after buying the Israeli company’s CT division. Philips now appears to be in line to replace Marconi, although that has yet to be determined.

Also unknown is how the proposed acquisition would affect the staff of each company. Marconi Medical has more than 4000 employees worldwide, while Philips Medical has 12,700.

“Whenever you acquire a company, there is some overlap of staff,” Geerts said.