Kodak today announced a $520 million bid for the medical imaging business of Imation. If the deal goes through, Kodak will strengthen its leadership position in x-ray film, gain access to a hot-selling line of dry-process laser printers, and markedly
Kodak today announced a $520 million bid for the medical imaging business of Imation. If the deal goes through, Kodak will strengthen its leadership position in x-ray film, gain access to a hot-selling line of dry-process laser printers, and markedly advance its position in the PACS market. The agreement is a resounding confirmation of Kodaks long-term plans for medical imaging, a market that the company was rumored to be leaving as recently as seven months ago.
We are reaffirming our commitment to our health imaging business with this transaction, said Daniel Carp, Kodak president and COO. This solidifies our position in this market and, we believe, provides Kodak with considerable growth potential.
The proposed acquisition will be detailed in the days ahead to regulatory agencies in the U.S. and will formally be introduced to regulators in Europe early next month.
Summarizing the major advantages of the deal, Kodak executives repeatedly cited the availability of a wider portfolio of innovative products and accelerated product development using a broader range of technology, as well as an expanded distribution network for products and services.
If the deal is consummated, Kodak plans to integrate the acquired businesses into its Health Imaging unit. The transaction will be funded with cash from internal operations and, if needed, from the capital market, according to Jesse Greene Jr., Kodak vice president of finance.
The deal will have no significant impact on the companys debt-to-capital ratio, Greene said. We also do not expect this acquisition to have any impact on our ongoing cost reduction program.
The acquisition of Imations medical assets would add to Kodaks leadership in the international and U.S. medical film markets. Martin Coyne, president of Kodaks Health Imaging business, refused to comment publicly on the exact market share that might be achieved as a result of the acquisition, stating only that Kodak holds approximately 30% of the overall world market for x-ray supplies, and Imation ranked fifth overall.
Industry analysts outside Kodak estimate that the Rochester, NY-based company holds a 33% share of film sales in North America and a 27% share of the international market. Imation is estimated to hold about a 10% share of the medical film marketplace in the U.S. and a 9% share globally. On the basis of these numbers, the Imation acquisition could boost Kodak to a 35% share of the medical film market globally and 43% of the U.S. market.
Any time you have a business that is largethat is a significant contributor to earnings and where you have a leadership positionyou want to keep bolstering it, said Carp.
An expanded base in medical film products is only one of several drivers behind the deal. Another is access to Imations DryView line of dry-process laser printers, which has been successfully marketed by the company over the last several years.
At the last Radiological Society of North America meeting, Kodak showed a work-in-progress dry process laser, 9000D. The product, which could be featured again this year at the meeting, would be competitive in price with Imations DryView. Kodak executives were not clear as to how they would handle having two similar products among the companys offerings, noting instead the importance of dry printing.
Imations position in PACS, achieved through the acquisition of Cemax-Icon in 1997, was also important to Kodak. Kodak has struggled in years past to break into the PACS marketplace. Its acquisition in the early 1990s of Vortech led to market confusion and product inconsistencies. That will not happen this time, according to Coyne.
We have a much better understanding of the digital world now, how to compete in it, and how to organize around it, Coyne said. I think the path forward will be a lot smoother now than it was five or six years ago, when all of us were learning how to compete in the digital world.
The Imation business being acquired by Kodak had a book value at the end of 1997 of $280 million. It generated about $500 million in revenues last year and involves about 1600 employees worldwide. How many of these employees will become Kodak staff, however, is not yet known.
While there may be some synergies that come out of this deal, it is much too early to know how we will take advantages of the strengths of both companies as we put this together, Carp said.
The proposed deal covers specific assets and liabilities held by Imation. Among the assets transferring to Kodak will be manufacturing facilities in White City, OR, and Oakdale, MN. An Imation manufacturing facility in Ferrania, Italy, where the company makes films for conventional x-ray and wet laser imaging, will not immediately be transferred, however. Under the proposed agreement, this plant will supply Kodak with the Imation products. Conversely, Kodak will supply Imation with document imaging products made at the White City facility, which will transfer from Imation to Kodak control upon completion of the deal. These supply agreements will be in force for at least two years, according to Kodak executives.
Then we will see if we want to bring all that inside or if we want to find other suppliers, Carp said. This is really a transition period to allow something of this size to go through smoothly so customers dont get hurt.
The acquisition deal included the settlement of a civil suit that Kodak had been pressing against Imation and 3M, the company that spun off Imation in 1996. The suit arose when a Kodak employee was convicted of selling proprietary information to competitors, including Imation, according to Kodak spokesperson Dawn Beck.
No mater how this comes out in terms of the final antitrust review, the litigation will be terminated, Greene said.