Philips purchase of Marconi Medical could be final by RSNA show

The radical devaluation of Marconi and deteriorating global economics have not deterred Royal Philips Electronics from purchasing Marconi Medical Systems. The Dutch firm is strongly committed to the acquisition, according to Paul Smit, vice president for strategy and business development at Philips Medical Systems, into which Marconi Medical will be merged. Only regulatory barriers in the U.S. and Europe stand in the way.

“The acquisition of Marconi Medical Systems is on schedule, and we are hopeful that it will be completed by the RSNA meeting in late November,” Smit told SCAN. “We are very excited about the capabilities that the Marconi Medical people and their product portfolio will add to Philips Medical Systems. We are eager to close this deal and begin the integration process.”

Royal Philips is not-absolutely not-considering an expansion of the deal to include acquisition of the parent of Marconi Medical Systems, even though the market capitalization of this company is about $989 million, or around $100 million less than Royal Philips plans to pay for just part of Marconi Medical. A stunning drop in the parent’s stock, which over the last year has plummeted from $29.12 to 70¢ (Sept. 26), raised the question of whether buying all of Marconi would be preferable to buying just a piece. Doing so would allow Philips to acquire all the medical business and associated infrastructure, and then sell off the rest. This seems reasonable when considering that the Marconi PACS business is excluded from the planned acquisition. Such an expansion is not in the cards, however, according to Smit.

“We are not an investment company,” he said. “We are not interested in buying a company, ripping it apart, and then keeping the pieces we want.”

Philips and Marconi executives have volunteered few details about their plans since the proposed deal was announced July 4. The silence has led to speculation in and outside the companies about whether and how the deal would go forward. Smit spoke with SCAN in response to an article published in the newsletter that raised questions about the deal (SCAN 9/19/01). This conversation offered a much clearer picture of how Marconi’s acquisition might be handled and the way product lines might be merged.

The Health Care Products (HCP) business of Marconi is definitely included in the deal, Smit said. What the company will do with this division once the deal is closed, however, has not yet been decided.

“It is a different sort of business,” he said. “ Its characteristics are different.”

Among the options being considered by Philips is spinning HCP off as a public company in which Philips would be a major shareholder. Others include selling this part of the business or keeping it as a wholly owned, independent subsidiary of Philips.

“Initially, we had some preconceived notions on what to do with it, but we’ve decided to revisit some of those assumptions,” Smit said.

Not included in the deal is Marconi’s PACS business. This segment of the medical business was never part of the negotiations, according to Smit.

“They didn’t offer it (PACS),” he said. “As we understand it, Marconi is considering a hospital IT business, of which they think PACS would be part.”

Marconi’s multislice CT scanners initially attracted Philips to the deal, and they remain a major driver behind its completion. These scanners promise to instantly transform Philips into a world leader in CT. They also will pave the way for Philips to meet increasing demand from customers for equipment bundles that are built around the inclusion of premium performance CT.

“MR and CT are often purchased together,” Smit said. “We see it in the U.S., and we are seeing it more and more in certain European countries.”

Multislice CT is also expected to bolster Philips’ already strong position in cardiology, as this technology becomes increasingly integrated into cardiac evaluations. Philips’ oncology offerings will be enhanced by Marconi’s large-bore CT simulator, which could be matched with radiation treatment planning products in the Philips ADAC line up, Smit said.

Philips could also rack up gains outside CT, he said. Marconi’s MR distribution channels and the people staffing them are seen as a boon for Philips. The newly released ultrashort-bore Infinion 1.5-tesla and 3-tesla scanners are also attractive, even though Philips has its own line of compact Intera MR scanners. The company may offer its own high-field and very high field Intera products alongside Marconi’s similar Infinion systems, according to Smit.

“We think there is room in the marketplace for both,” he said.

Smit was less specific about opportunities for Marconi’s nuclear medicine equipment. Philips, through its ADAC Laboratories acquisition last year, already has one of the broadest lines of gamma cameras in the world.

“We still have to look at any overlaps in functionality and price points,” he said. “Depending on that analysis, we will have to decide whether we need to adjust the combined product portfolio. We will do this after the closing (of the deal).”

Not known is whether Philips will continue the supplier agreement struck by Marconi and CTI just prior to the annual meeting of the Society of Nuclear Medicine in June (SCAN 5/9/01). The deal calls for Marconi to distribute CTI’s PET technology under its own label. Philips ADAC has several PET products, including a high-performance product based on a highly efficient detector crystal (SCAN 9/19/01).

“At this point we are not discussing (that agreement) in detail because, from a regulatory approval point of view, we are still competitors (with Marconi), so we cannot have these discussions right now,” he said. “We will have to wait until after the deal is closed.”