Siemens will buy ultrasound pioneer Acuson for $700 million

October 11, 2000

The only major independent vendor of ultrasound equipment may soon be part of a multimodality giant. Acuson has agreed to be acquired by Siemens Medical Engineering.The $700 million deal, announced Sept. 27, will not be complete until shareholder and

The only major independent vendor of ultrasound equipment may soon be part of a multimodality giant. Acuson has agreed to be acquired by Siemens Medical Engineering.

The $700 million deal, announced Sept. 27, will not be complete until shareholder and regulatory approvals are obtained, a process that could take until the end of the year. If it does go through, however, the merger will create the largest ultrasound company in the world, according to Acuson and Siemens executives.

Their claim is accurate, industry sources said, if last year’s sales of the two companies are combined. But there is no certainty that these sales patterns will continue.

Big-ticket products, namely the Siemens Sonoline Elegra and Acuson Sequoia, account for the majority of the companies’ ultrasound revenues. Although Siemens and Acuson executives claim that Elegra and Sequoia are not competitive, some industry analysts consider them direct competitors, and the two companies for years have been aggressively marketing both systems to the radiology community.

“They are definitely competitors in the U.S. market,” said an industry analyst. “How they will position these products is going to be a monumental job.”

Sales could be affected by uncertainty about whether both products will be supported in the future. President of Siemens’ ultrasound division John D. Pavlidis, however, emphatically stated that neither product would be discontinued.

“The intent is absolutely to continue both product lines and simply integrate and combine the best of both worlds,” Pavlidis said. “They (the two products) have their unique advantages and they can only get better in the future.”

But while agreeing with Pavlidis and reiterating the companies’ support for each others’ combined products, Acuson founder, CEO, and chairman Samuel Maslak left the door open to possibly hybridizing the technology into something new.

“The best practices and best technologies from the product families can migrate to one another,” he said. “Through this collaboration, the customers are really going to win, because whichever platform they have or are thinking about, that platform’s prospects just got brighter.”

Siemens is now preparing a tender offer of $23 per share to Acuson stockholders. Once the company achieves a majority stake, the transformation of Acuson into a wholly owned subsidiary of Siemens is all but assured.

About 53% of Acuson stock is held by institutions and another 39% by Acuson insiders. Maslak himself is known to hold a substantial block.

Shareholders are the clearest winners. Despite revenue in 1999 of $476 million, the stock has been stuck in neutral since topping out at about $40 in 1991. In 2000, the stock had barely edged above $15 before shooting to nearly $23 when the Siemens acquisition was announced.

Siemens and Acuson stand to gain substantially from the merger, as well. The product offerings and infrastructures of the two companies are largely complementary. Siemens is strong in the mid-tier ultrasound segment, while Acuson has been dominant at the super-premium end. Acuson earns about 70% of its revenue from sales in the U.S., whereas Siemens makes 60% of its ultrasound sales in Europe.

Acuson is a major player in the echocardiography market and, according to Maslak, has been gaining ground the past several years. Siemens has failed to even develop a product for this segment. Siemens could contribute to echocardiography sales, however, by leveraging its customer base in other products, and by using its financial strength to support Acuson in price wars with its principal rival, Agilent, which dominates much of the cardiovascular ultrasound market.

“If you look at Siemens’ position in the areas of angiography, CT, MR, and nuclear medicine, as well as in patient monitoring and information technology, you’ll see we are in a unique position to offer solutions to the cardiac segment,” said Erich R. Reinhardt, group president and CEO of Siemens Medical Engineering.

On the networking side, Siemens’ recent acquisition of information technology provider Shared Medical Systems could contribute to the connectivity of ultrasound products. SMS is a major application services provider, networking thousands of healthcare providers and hundreds of thousands of workstations.

“SMS ties in beautifully with our vision of ultrasound connectivity,” said Bill Carrano, Acuson vice president for worldwide marketing.

Still up in the air, however, are issues regarding resources and products that are not so complementary. Executives from both companies have agreed to move Siemens Ultrasound worldwide headquarters to Mountain View, CA, from its current location in Issaquah, WA. The official word, however, is that the Issaquah site will not be closed, according to Reinhardt.

“We do have R&D locations in different regions,” Reinhardt said. “This is an advantage and, therefore, we will continue (to operate the one in) Issaquah. There is no doubt.”

Also caught in a competitive squeeze will be ultrasound connectivity products. Acuson offers its KinetDx PACS solution, while Siemens provides a miniPACS product supplied by ALI Technologies. But again Pavlidis highlighted the positive.

“The KinetDx product is extremely strong in a dedicated ultrasound PACS scheme and we see only excellent potential synergies moving forward and integrating that into a more complete solution,” he said.

Staffing is another concern. Acuson has 1800 employees while Siemens Medical Systems has 4500. Most mergers are accompanied by personnel consolidations, layoffs, and the retirement of at least some top executives.

Of particular interest will be how industry pioneer Maslak fares. He was the engineer who developed most of Acuson’s product line. He will step down from his role as Acuson CEO and chairman to become a consultant in product development and strategic planning.

Maslak said the fates of other Acuson executives will be worked out in time.