Varian’s split into three companies may give firm better healthcare focus

September 2, 1998

Company believes move will improve share pricesVarian Associates expects that its healthcare operations will gain better focus following the spin-off of the company into three separate businesses. Varian, of Palo Alto, CA, announced late last

Company believes move will improve share prices

Varian Associates expects that its healthcare operations will gain better focus following the spin-off of the company into three separate businesses. Varian, of Palo Alto, CA, announced late last month that it plans to split the company into three publicly traded firms participating in the healthcare, semiconductor, and scientific instruments industries.

The spin-offs will be completed in the next six to nine months, pending government and shareholder approval, and investors will receive shares in the new companies equivalent to their holdings immediately prior to distribution.

Varian's board of directors is pursuing the spin-offs as a means of improving the value of the company's stock, which is sold at a conglomerate discount due to the diversity of the firm's operations, according to company executives. The firm hopes its shares will be valued higher if each of its business units functions independently and competes within its particular market. Although the three units developed from similar technology, they no longer share products or markets.

"A company with three different businesses in three different markets is hard for security analysts to follow and understand," said Laurie Alire, Varian's director of corporate communications. "We tend not to have the kind of coverage or following that other companies have."

According to industry analysts, Varian's shares have been badly hit by 1998's semiconductor slump, which affects the company disproportionately to its overall productivity. The two-thirds of the company's business not connected to the semiconductor market continues to do well, Alire said.

The company was founded 50 years ago by Sigurd and Russell Varian to commercialize the klystron tubes the brothers invented at a Stanford University laboratory in the 1930s. Klystron tubes are microwave tubes used in UHF television broadcasts, commercial and defense radar, satellite communications, and medical linear accelerators for cancer therapy.

Varian entered the healthcare products market in the 1960s when it acquired Eitel-McCullough (Eimac), a power-grid tube business that also produced x-ray tubes. In addition to x-ray tubes, the healthcare unit offers radiation oncology systems and support services. The company's R&D lab has been busy of late with its work-in-progress Large Area Sensing Technology (LAST), a digital x-ray technology based on amorphous silicon detectors. Varian is working with both medical and industrial OEMs to develop LAST technology in various applications, concentrating initially on fluoroscopy (SCAN 3/18/98). The company began placing the detectors with OEMs in June.

How will Varian's healthcare technology, particularly LAST, be affected by the spin-offs? It shouldn't be, according to Alire.

"By and large, the businesses are going to be totally unaffected," she said. "They aren't even going to have new bosses. They're essentially going to have the same basic structure."

Although it is unclear which two of the three units will split off, Varian announced that each of the companies will retain its existing leadership. Richard Levy will be president and CEO of the Health Care Systems segment. The unit will not be relocated from any of its sites, which include Palo Alto and Salt Lake City, as well as locations across Europe, including Crawley, U.K. The healthcare unit enjoyed sales of $472 million in fiscal 1997, and revenues of $340 million for the third quarter 1998 (end-July).

Varian anticipates that the corporate staff of the new companies will be tapped from its existing personnel pool, but expects some layoffs as new staff teams coalesce. The firm employs more than 7100 people worldwide.

Ultimately, Varian hopes the spin-off strategy will focus its competitive edge.

"Each business will have a dedicated board of directors, and a management team that isn't distracted by the concerns of other markets and customer bases," Alire said.